2017 ANNUAL REPORT
Member FDIC
229-426-6000 • www.colonybank.com
Colony Bankcorp, Inc.
P.O. Box 989 • 115 S. Grant St.
Fitzgerald, GA 31750
Table of
Contents
Letter to the
Shareholders .............1
Financial Summary .... 2
Total Return
Performance ............. 3
Board of Directors ..... 4
Market Presidents ...... 5
Savannah and
Tifton Offi ces ............ 6
Consolidated
Financial Statements ...7
Colony Bankcorp, Inc. common stock is
quoted on the NASDAQ Global Market
under the symbol “CBAN.”
COLONY BANKCORP, INC.
SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS:
Colony Bankcorp, Inc.
P.O. Box 989
115 South Grant Street
Fitzgerald, Georgia 31750
229-426-6000
ANNUAL MEETING
Tuesday, May 22, 2018 at 2:00 p.m.
Colony Bankcorp, Inc.
115 South Grant Street
Fitzgerald, Georgia 31750
INDEPENDENT AUDITORS:
McNair, McLemore, Middlebrooks & Co., LLC
P.O. Box One
Macon, Georgia 31202
SHAREHOLDER SERVICES:
Shareholders who want to change the name,
address or ownership of stock; to report
lost, stolen or destroyed certifi cates; or to
consolidate accounts should contact:
American Stock Transfer & Trust Company
Operations Center
6201 15th Avenue
Brooklyn, NY 11219
800-937-5449
www.amstock.com
Dear
Shareholders,
2017 was a remarkable year for Colony Bankcorp, Inc.,
the banking industry, and for the U. S. economy, in general. Colony
continued to make progress in terms of profitability and credit
quality, in particular. Details are summarized below:
Profitability:
Income available to shareholders was $7.54 million or $.87 per share
in 2017 compared to $7.18 million or $.84 per share the prior year, a
5.01% increase. While this increase is positive it does not truly reflect
the progress made in 2017. As a result of the Tax Reform Act signed by
President Trump on December 22, 2017, FASB accounting standards
require public companies to write down deferred tax assets to the
new tax rate of 21% compared to the old rate of 35%. Excluding the
one-time tax adjustment for Colony Bankcorp, Inc., income available
to shareholders would have been $9.581 million or $1.11 per share,
a 33.4% increase. In addition, return on average assets would have
been .80% and return on equity would have been 10.52%.
Non-Performing Assets:
• Non-Performing assets decreased from $18.8 million to
$11.8 million, a 37.4% reduction.
• Foreclosed real estate (OREO) decreased from $6.4 million
to $4.3 million, a 33.9% reduction.
• Net charge offs were $1,805,785 or .24% of total loans compared
to $742,612 or .10% of total loans in 2016.
• Credit-related expenses declined 62% from $1.3 million to
$500 thousand.
• Past due loans of 30 days or more decreased from 1.59% to 1.07%.
• Criticized assets to capital and reserves improved from 25.67%
to 20.18%.
During 2017 Colony was successful in retiring our TARP preferred
securities. These securities peeked at approximately $34 million in
2014 and the related expense was a significant drag on the company’s
earnings. With these securities retired, the company’s ability to
consider strategic opportunities is greatly enhanced. In that regard,
during the first quarter 2017, the company reinstated quarterly cash
dividends, payable to shareholders, of $.025 per share. The Board of
Directors increased the quarterly dividend payout ratio to $.05 per
share effective March 30, 2018.
Colony management is pursuing several initiatives to improve
earnings and operating efficiency. Loans are still our primary
product, and with an improving economy, quality loan growth
should be attainable. Non-interest income opportunities exist in
our payment process contracts as well as other areas. Of particular
note related to efficiency, we are closing the Albany/Chehaw office
of Colony in May, 2018. While this office achieved some degree of
success, the trends indicated our capital could be better deployed
elsewhere. Management constantly reassesses the effectiveness of
the company’s delivery systems to improve efficiency and earnings
potential.
The banking industry has now endured the Great Recession and is
currently poised to experience better times. For the first time in quite
some time, we hear discussion of reduced regulatory oversight from
Washington, D. C. While this is mostly just discussion at this point,
we believe community banks will see relief in the coming years. In
addition, we expect a gradually increasing interest rate environment
where depositors will once again be more justly rewarded for their
deposits. Last, but not least, the financial health of our borrowers has
improved significantly, creating better lending opportunities and
reduced credit-related expenses. Overall, the banking environment
has improved significantly; thereby improving Colony’s earning
capacity as well.
Economic trends for Georgia, the Southeast, and the U.S. are quite
favorable. Interest rates, while increasing somewhat, remain at
historically low levels. Residential construction and mortgage
lending have returned to normal volume with reasonable valuations.
Of particular note, the Port of Savannah continues to set records
in container volume and the positive impact is felt throughout
South Georgia and beyond. The impact of the Tax Reform Act is
expected to not only boost capital investment, but also increase
consumer spending. This in turn should create improved economic
opportunities for Colony. In general, our clients are more optimistic
about business activity than they have been in some time. Hopefully
this optimism is well founded.
The board, management and employees of Colony look forward to
2018 and appreciate your continuing support.
Edward P. Loomis, Jr.
President and
Chief Executive Officer
Mark H. Massee
Chairman of the Board
1
2017 KEY PERFORMANCE INDICATORS
Years Ended December 31, 2017 and 2016
Dollar amounts in thousands
except per share data
2017
2016
Percent
Change
Total Assets
$1,232,755
$1,210,442
1.84%
Total Deposits
$1,067,985
$1,044,357
2.26%
Loans (Net of Unearned Income)
$764,788
$753,922
1.44%
Net Income
$7,540
$7,180
5.01%
Per Share Data:
Basic Earnings
$0.89
$0.85
4.71%
Common Book Value/Share
$10.70
$9.96
7.43%
KEY TRENDS
A Historical Comparative
Years Ending
Net Income
(in thousands)
2017
2016
2015
2014
2013
$7,540
$7,180
$5,998
$4,843
$3,120
Return on Average
Shareholders’ Equity
Diluted Earnings
Per Share
8.28%
$0.87
7.17%
$0.84
5.90%
5.11%
3.34%
$0.71
$0.57
$0.37
RETURN ON AVERAGE ASSETS
2017
0.63%
2016
0.62%
NET INTEREST MARGIN
2017
3.46%
2016
3.51%
Financial
Summary
2
Total Return
Performance
Colony Bankcorp, inc.
nasdaq composite index
snl southeast bank index
450
400
350
300
250
200
150
100
50
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
PERIOD ENDING
Index
12/31/12
12/31/13
12/31/14
12/31/15
12/31/16
12/31/17
Colony Bankcorp, Inc.
100.00
169.44
218.89
264.72
366.67
408.55
NASDAQ Composite Index
100.00
140.12
160.78
171.97
187.22
242.71
SNL Southeast Bank Index
100.00
135.52
152.63
150.24
199.45
246.72
Source: S&P Global Market Intelligence © 2017
3
board of
Directors
Edward P. Loomis, Jr.
President/CEO
Colony Bankcorp, Inc.
Fitzgerald, Georgia
Mark H. Massee
Chairman
Colony Bankcorp, Inc.
President
Massee Builders, Inc.
Fitzgerald, Georgia
Michael Frederick (Freddie)
Dwozan, Jr.
Vice Chairman
Colony Bankcorp, Inc.
President/CEO/Owner
Medical Center Prescription Shop
Eastman, Georgia
Terry L. Hester
EVP/Chief Financial Officer
Colony Bankcorp, Inc.
Fitzgerald, Georgia
Jonathan W.R. Ross
President
Ross Construction Co., Inc.
Tifton, Georgia
Scott L. Downing
President
SDI Investments
Fitzgerald, Georgia
Executive
Officers
4
Edward P. Loomis, Jr
President/CEO
Terry L. Hester
EVP/Chief Financial Officer
J. Stan Cook
EVP/Chief Operating Officer
Edward L. Bagwell, III
EVP/Chief Credit Officer
Lee A. Northcutt
EVP/Regional Executive Officer
M. Edward Hoyle, Jr.
EVP/Regional Executive Officer
market
Presidents
Jeffery Alton
Market President
Thomaston
Jon Butler
Market President
Eastman/Soperton
Chip Carroll
Market President
Quitman
Bob Evans
Market President
Cordele
Bill Marsh
Market President
Tifton
Scott Miller
Market President
Douglas/Broxton
Johnny Bryan
Market President
Sylvester
John Roberts
Market President
Columbus
Phil Franklin
Market President
Albany/Leesburg/Chehaw
Kirk Scott
Market President
Warner Robins/Centerville
John Gandy
Market President
Moultrie
Drew Hulsey
Market President
Savannah/Statesboro
Andy Johnson
Market President
Ashburn
Eddie Smith
Market President
Valdosta
Mark Turner
Market President
Fitzgerald
Nic Worthy
Market President
Rochelle
5
Even More
Ways to
Serve You
Savannah
241 Drayton Street
Savannah, GA 31401
(912) 454-2479
Tifton
104 2nd St W
Tifton, GA 31794
(229) 386-2265
6
VISIT OUR TWO NEWEST LOCATIONS.
Lobby Hours:
9:00 am - 5:00 pm Monday - Friday
Closed Saturday - Sunday
Lobby Hours:
9:00 am - 4:00 pm Monday - Thursday
9:00 am - 6:00 pm Friday
Closed Saturday - Sunday
Drive-thru Hours:
8:30 am - 4:00 pm Monday - Thursday
8:30 am - 6:00 pm Friday
8:30 am - 12:00 pm Saturday
Closed Sunday
MCNAIR, MCLEMORE, MIDDLEBROOKS & CO., LLC
CERTIFIED PUBLIC ACCOUNTANTS
389 Mulberry Street • Post Office Box One • Macon, GA 31202
Telephone (478) 746-6277 • Facsimile (478) 743-6858
mmmcpa.com
March 15, 2018
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Colony Bankcorp, Inc.
Opinions on the Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Colony Bankcorp, Inc. and subsidiary
(the Company) as of December 31, 2017 and 2016, and the related consolidated statements of operations,
comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended
December 31, 2017, and the related notes (collectively, the financial statements). We also have audited
the Company’s internal control over financial reporting as of December 31, 2017, based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission in 2013.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31, 2017, in conformity with
accounting principles generally accepted in the United States of America. Also, in our opinion, the
Company maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2017, based on criteria established in Internal Control — Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
Basis for Opinions
The Company's management is responsible for these financial statements, for maintaining effective
internal control over financial reporting, and for its assessment of the effectiveness of internal control over
financial reporting, included under Item 9A, Controls and Procedures, in the Company’s Annual Report
on Form 10-K. Our responsibility is to express an opinion on the Company's financial statements and an
opinion on the company's internal control over financial reporting based on our audits. We are a public
accounting firm registered with the Public Company Accounting Oversight Board (United States)
(PCAOB) and are required to be independent with respect to the Company in accordance with U.S.
federal securities laws and the applicable rules and regulations of the Securities and Exchange
Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that
we plan and perform the audits to obtain reasonable assurance about whether the financial statements are
free of material misstatement, whether due to error or fraud, and whether effective internal control over
financial reporting was maintained in all material respects.
7
Our audits of the financial statements included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, and testing and evaluating the design and operating effectiveness of internal control
based on the assessed risk. Our audits also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company's internal
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (3) provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLC
We have served as the Company’s auditor since 1995.
Macon, Georgia
March 15, 2018
8
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
ASSETS
Cash and Cash Equivalents
Cash and Due from Banks
Interest-Bearing Deposits
Investment Securities
Available for Sale, at Fair Value
2017
2016
$ 23,145,136
$ 28,822,104
34,667,715
46,344,859
354,246,904
323,657,870
Federal Home Loan Bank Stock, at Cost
3,042,900
3,010,000
Loans
Allowance for Loan Losses
Unearned Interest and Fees
765,283,855
(7,507,508)
(495,500)
754,283,563
(8,923,293)
(361,042)
757,280,847
744,999,228
Premises and Equipment
27,639,430
27,969,260
Other Real Estate (Net of Allowance of $1,451,492
and $1,878,127 in 2017 and 2016, Respectively)
Other Intangible Assets
Other Assets
Total Assets
4,256,469
6,439,226
44,766
80,515
28,431,150
29,118,555
$1,232,755,317
$1,210,441,617
See accompanying notes which are an integral part of these financial statements.
9
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
LIABILITIES AND STOCKHOLDERS’ EQUITY
Deposits
Noninterest-Bearing
Interest-Bearing
Borrowed Money
Subordinated Debentures
Other Borrowed Money
Other Liabilities
Commitments and Contingencies
2017
2016
$ 190,927,928
877,057,477
$ 159,058,633
885,297,895
1,067,985,405
1,044,356,528
24,229,000
47,500,000
24,229,000
46,000,000
71,729,000
70,229,000
2,718,249
2,468,356
Stockholders’ Equity
Preferred Stock, Stated Value $1,000; 10,000,000 Shares
Authorized, 0 and 9,360 Shares Issued and Outstanding
as of December 31, 2017 and 2016
Common Stock, Par Value $1; 20,000,000 Shares Authorized,
8,439,258 Shares Issued and Outstanding as of
December 31, 2017 and 2016
Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
-
9,360,000
8,439,258
29,145,094
59,230,260
(6,491,949)
8,439,258
29,145,094
51,465,521
(5,022,140)
90,322,663
93,387,733
Total Liabilities and Stockholders’ Equity
$1,232,755,317
$1,210,441,617
See accompanying notes which are an integral part of these financial statements.
10
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
Interest Income
Loans, Including Fees
Federal Funds Sold
Deposits with Other Banks
Investment Securities
U.S. Government Agencies
State, County and Municipal
Corporate
Dividends on Other Investments
Interest Expense
Deposits
Federal Funds Purchased
Borrowed Money
Net Interest Income
Provision for Loan Losses
2017
2016
2015
$38,613,540
3
232,397
6,717,827
115,097
87,387
150,172
$38,942,503
-
124,459
5,263,741
127,379
-
131,007
$39,716,269
14,561
79,735
4,235,207
107,638
-
122,070
45,916,423
44,589,089
44,275,480
4,758,073
2,639
2,112,017
4,781,228
581
1,701,522
4,856,673
26
1,712,548
6,872,729
6,483,331
6,569,247
39,043,694
38,105,758
37,706,233
390,000
1,062,000
865,500
Net Interest Income After Provision for Loan Losses
38,653,694
37,043,758
36,840,733
Noninterest Income
Service Charges on Deposits
Other Service Charges, Commissions and Fees
Mortgage Fee Income
Securities Gains (Losses)
Other
Noninterest Expenses
Salaries and Employee Benefits
Occupancy and Equipment
Directors’ Fees
Legal and Professional Fees
Foreclosed Property
FDIC Assessment
Advertising
Software
Telephone
ATM/Card Processing
Other
4,466,997
3,040,262
858,658
-
1,368,648
4,307,214
2,802,651
681,806
385,223
1,376,860
4,268,438
2,627,157
527,187
(11,466)
1,633,205
9,734,565
9,553,754
9,044,521
19,222,594
3,947,941
298,100
893,938
363,519
386,823
349,722
1,192,025
813,592
1,467,411
4,924,163
18,482,693
3,970,244
348,755
791,563
1,143,518
603,654
609,892
1,112,065
737,063
1,136,122
5,137,400
17,589,631
3,989,347
358,291
737,731
1,682,783
899,302
624,844
992,593
710,038
1,061,262
5,078,932
33,859,828
34,072,969
33,724,754
Income Before Income Taxes
14,528,431
12,524,543
12,160,500
Income Taxes
Net Income
Preferred Stock Dividends
6,777,453
7,750,978
210,600
3,851,333
3,787,803
8,673,210
1,493,310
8,372,697
2,375,010
Net Income Available to Common Stockholders
$ 7,540,378
$ 7,179,900
$ 5,997,687
Net Income Per Share of Common Stock
Basic
Diluted
Cash Dividends Declared Per Share of Common Stock
Weighted Average Shares Outstanding, Basic
Weighted Average Shares Outstanding, Diluted
$ 0.89
$ 0.87
$ 0.10
8,439,258
8,633,581
$ 0.85
$ 0.84
$ 0.00
8,439,258
8,513,295
$ 0.71
$ 0.71
$ 0.00
8,439,258
8,458,461
See accompanying notes which are an integral part of these financial statements.
11
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31
2017
2016
2015
Net Income
$ 7,750,978
$ 8,673,210
$ 8,372,697
Other Comprehensive Income (Loss)
Gains (Losses) on Securities Arising During the Year
Tax Effect
Realized (Gains) Losses on Sale of AFS Securities
Tax Effect
Change in Unrealized Gains (Losses) on Securities
Available for Sale, Net of Reclassification
Adjustment and Tax Effects
(608,355)
206,841
-
-
(505,367)
171,825
(385,223)
130,976
610,689
(207,634)
11,466
(3,898)
(401,514)
(587,789)
410,623
Comprehensive Income
$ 7,349,464
$ 8,085,421
$ 8,783,320
See accompanying notes which are an integral part of these financial statements.
12
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13
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
Cash Flows from Operating Activities
Net Income
Adjustments to Reconcile Net Income to Net
Cash Provided from Operating Activities
Depreciation
Amortization and Accretion
Provision for Loan Losses
Deferred Income Taxes
Securities (Gains) Losses
(Gain) Loss on Sale of Premises and Equipment
Loss on Sale of Other Real Estate and Repossessions
Provision for Losses on Other Real Estate
Increase in Cash Surrender Value of Life Insurance
Change In
Interest Receivable
Prepaid Expenses
Interest Payable
Accrued Expenses and Accounts Payable
Other
Cash Flows from Investing Activities
Interest-Bearing Deposits in Other Banks
Purchase of Investment Securities
Available for Sale
Proceeds from Sale of Investment Securities
Available for Sale
Proceeds from Maturities, Calls and Paydowns
of Investment Securities
Available for Sale
Held to Maturity
Proceeds from Sale of Premises and Equipment
Net Loans to Customers
Purchase of Premises and Equipment
Proceeds from Sale of Other Real Estate and Repossessions
Proceeds from Sale of Federal Home Loan Bank Stock
Purchase of Federal Home Loan Bank Stock
Cash Flows from Financing Activities
Interest-Bearing Customer Deposits
Noninterest-Bearing Customer Deposits
Proceeds from Other Borrowed Money
Principal Payments on Other Borrowed Money
Dividends Paid on Preferred Stock
Redemption of Preferred Stock
Dividends Paid on Common Stock
2017
2016
2015
$ 7,750,978
$ 8,673,210
$ 8,372,697
1,647,813
1,413,362
390,000
2,833,958
-
(10,735)
(208,329)
333,767
(1,669,424)
(90,204)
139,382
21,188
361,005
(367,626)
1,574,249
1,609,339
1,062,000
222,120
(385,223)
80,329
160,682
501,736
(589,408)
176,766
(372,380)
(46,284)
(252,617)
973,972
1,657,229
1,797,152
865,500
625,436
11,466
11,047
600,663
453,148
(299,010)
(354,274)
278,637
32,253
(202,343)
217,686
12,545,135
13,388,491
14,067,287
11,677,144
(7,729,560)
(17,409,260)
(87,160,178)
(109,634,793)
(102,336,227)
-
25,209,851
28,273,634
54,587,986
-
37,650
(14,459,526)
(1,344,898)
3,863,576
-
(32,900)
54,868,726
-
89,551
(2,167,126)
(3,259,859)
7,529,131
-
(279,500)
51,423,541
9,734
28,608
(21,255,018)
(3,189,969)
8,154,596
100,300
-
(32,831,146)
(35,373,579)
(56,200,061)
(8,240,418)
31,869,295
10,015,500
(8,515,500)
(315,900)
(9,360,000)
(843,934)
7,629,930
25,172,362
10,000,000
(4,000,000)
(1,590,746)
(8,661,000)
-
26,704,254
5,546,508
27,000,000
(27,000,000)
(2,487,274)
(9,979,000)
-
14,609,043
28,550,546
19,784,488
Net Increase (Decrease) in Cash and Cash Equivalents
(5,676,968)
6,565,458
(22,348,286)
Cash and Cash Equivalents, Beginning
28,822,104
22,256,646
44,604,932
Cash and Cash Equivalents, Ending
See accompanying notes which are an integral part of these financial statements.
$ 23,145,136
$ 28,822,104
$ 22,256,646
14
COLONY BANKCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Principles of Consolidation
Colony Bankcorp, Inc. (the Company) is a bank holding company located in Fitzgerald, Georgia. The
consolidated financial statements include the accounts of Colony Bankcorp, Inc. and its wholly-owned
subsidiary, Colony Bank, Fitzgerald, Georgia. All significant intercompany accounts have been eliminated
in consolidation. The accounting and reporting policies of Colony Bankcorp, Inc. conform to generally
accepted accounting principles and practices utilized in the commercial banking industry.
Nature of Operations
The Company provides a full range of retail and commercial banking services for consumers and small- to
medium-size businesses located primarily in central, south and coastal Georgia. Colony Bank is
headquartered in Fitzgerald, Georgia with banking offices in Albany, Ashburn, Broxton, Centerville,
Columbus, Cordele, Douglas, Eastman, Fitzgerald, Leesburg, Moultrie, Quitman, Rochelle, Savannah,
Soperton, Statesboro, Sylvester, Thomaston, Tifton, Valdosta and Warner Robins. Lending and investing
activities are funded primarily by deposits gathered through its retail banking office network.
Use of Estimates
In preparing the financial statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the balance sheet date and revenues and expenses for the
period. Actual results could differ significantly from those estimates. Material estimates that are particularly
susceptible to significant change in the near term relate to the determination of the allowance for loan losses
and the valuation of real estate acquired in connection with foreclosures or in satisfaction of loans.
Reclassifications
In certain instances, amounts reported in prior years’ consolidated financial statements and note disclosures
have been reclassified to conform to statement presentations selected for 2017. Such reclassifications had no
effect on previously reported stockholders’ equity or net income.
15
(1) Summary of Significant Accounting Policies (Continued)
Concentrations of Credit Risk
Concentrations of credit risk can exist in relation to individual borrowers or groups of borrowers, certain
types of collateral, certain types of industries or certain geographic regions. The Company has a
concentration in real estate loans as well as a geographic concentration that could pose an adverse credit risk,
particularly with the current economic downturn in the real estate market. At December 31, 2017,
approximately 87.1 percent of the Company’s loan portfolio was concentrated in loans secured by real estate.
A substantial portion of borrowers’ ability to honor their contractual obligations is dependent upon the
viability of the real estate economic sector. Declining collateral real estate values that secure land
development, construction and speculative real estate loans in the Company’s larger MSA markets have
resulted in high loan loss provisions in recent years. In addition, a large portion of the Company’s foreclosed
assets are also located in these same geographic markets, making the recovery of the carrying amount of
foreclosed assets susceptible to changes in market conditions. Management continues to monitor these
concentrations and has considered these concentrations in its allowance for loan loss analysis.
The success of the Company is dependent, to a certain extent, upon the economic conditions in the
geographic markets it serves. Adverse changes in the economic conditions in these geographic markets
would likely have a material adverse effect on the Company’s results of operations and financial condition.
The operating results of the Company depend primarily on its net interest income. Accordingly, operations
are subject to risks and uncertainties surrounding the exposure to changes in the interest rate environment.
At times, the Company may have cash and cash equivalents at financial institutions in excess of federal
deposit insurance limits. The Company places its cash and cash equivalents with high credit quality financial
institutions whose credit rating is monitored by management to minimize credit risk.
Investment Securities
The Company classifies its investment securities as trading, available for sale or held to maturity. Securities
that are held principally for resale in the near term are classified as trading. Trading securities are carried at
fair value, with realized and unrealized gains and losses included in noninterest income. Currently, no
securities are classified as trading. Securities acquired with both the intent and ability to be held to maturity
are classified as held to maturity and reported at amortized cost. All securities not classified as trading or
held to maturity are considered available for sale. Securities available for sale are reported at estimated fair
value. Unrealized gains and losses on securities available for sale are excluded from earnings and are
in accumulated other comprehensive income (loss), a component of
reported, net of deferred taxes,
stockholders’ equity. Gains and losses from sales of securities available for sale are computed using the
specific identification method. Securities available for sale includes securities, which may be sold to meet
liquidity needs arising from unanticipated deposit and loan fluctuations, changes in regulatory capital
requirements, or unforeseen changes in market conditions.
16
(1) Summary of Significant Accounting Policies (Continued)
Investment Securities (Continued)
The Company evaluates each held to maturity and available for sale security in a loss position for other-than-
temporary impairment (OTTI). In estimating other-than-temporary impairment losses, management
considers such factors as the length of time and the extent to which the market value has been below cost, the
financial condition of the issuer and the Company’s intent to sell and whether it is more likely than not that
the Company will be required to sell the security before anticipated recovery of the amortized cost basis. If
the Company intends to sell or if it is more likely than not that the Company will be required to sell the
security before recovery, the OTTI write-down is recognized in earnings. If the Company does not intend to
sell the security or it is not more likely than not that it will be required to sell the security before recovery,
the OTTI write-down is separated into an amount representing credit loss, which is recognized in earnings,
and an amount related to all other factors, which is recognized in other comprehensive income (loss).
Federal Home Loan Bank Stock
Investment in stock of a Federal Home Loan Bank (FHLB) is required for every federally insured institution
that utilizes its services. FHLB stock is considered restricted, as defined in the accounting standards. The
FHLB stock is reported in the consolidated financial statements at cost. Dividend income is recognized
when earned.
Loans
Loans that the Company has the ability and intent to hold for the foreseeable future or until maturity are
recorded at their principal amount outstanding, net of unearned interest and fees. Loan origination fees, net
of certain direct origination costs, are deferred and amortized over the estimated terms of the loans using the
straight-line method. Interest income on loans is recognized using the effective interest method.
A loan is considered to be delinquent when payments have not been made according to contractual terms,
typically evidenced by nonpayment of a monthly installment by the due date.
When management believes there is sufficient doubt as to the collectibility of principal or interest on any
loan or generally when loans are 90 days or more past due, the accrual of applicable interest is discontinued
and the loan is designated as nonaccrual, unless the loan is well secured and in the process of collection.
Interest payments received on nonaccrual loans are either applied against principal or reported as income,
according to management’s judgment as to the collectibility of principal. Loans are returned to an accrual
status when factors indicating doubtful collectibility on a timely basis no longer exist.
17
(1) Summary of Significant Accounting Policies (Continued)
Loans Modified in a Troubled Debt Restructuring (TDR)
Loans are considered to have been modified in a TDR when, due to a borrower’s financial difficulty, the
Company makes certain concessions to the borrower that it would not otherwise consider for new debt with
similar risk characteristics. Modifications may include interest rate reductions, principal or interest
forgiveness, forbearance, and other actions intended to minimize economic loss and to avoid foreclosure or
repossession of the collateral. Generally, a nonaccrual loan that has been modified in a TDR remains on
nonaccrual status for a period of six months to demonstrate that the borrower is able to meet the terms of the
modified loan. However, performance prior to the modification, or significant events that coincide with the
modification, are included in assessing whether the borrower can meet the new terms and may result in the
loan being returned to accrual status at the time of loan modification or after a shorter performance period. If
the borrower’s ability to meet the revised payment schedule is uncertain, the loan remains on nonaccrual
status. Once a loan is modified in a troubled debt restructuring, it is accounted for as an impaired loan,
regardless of its accrual status, until the loan is paid in full, sold or charged off.
Allowance for Loan Losses
The allowance for loan losses is established as losses are estimated to have occurred through a provision for
loan losses charged to earnings. Loan losses are charged against the allowance when management believes
the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the
allowance.
The allowance for loan losses is evaluated on a regular basis by management and is based upon
management’s periodic review of the collectibility of the loans in light of historical experience, the nature
and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated
value of any underlying collateral and prevailing economic conditions. This evaluation is inherently
subjective, as it requires estimates that are susceptible to significant revisions as more information becomes
available.
The allowance consists of specific, historical and general components. The specific component relates to
loans that are classified as either doubtful, substandard or special mention. For such loans that are also
classified as impaired, an allowance is established when the discounted cash flows (or collateral value or
observable market price) of the impaired loan are lower than the carrying value of that loan. The historical
component covers nonclassified loans and is based on historical loss experience adjusted for qualitative
factors. A general component is maintained to cover uncertainties that could affect management’s estimate
of probable losses. The general component of the allowance reflects the margin of imprecision inherent in
the underlying assumptions used in the methodologies for estimating specific and historical losses in the
portfolio. General valuation allowances are based on internal and external qualitative risk factors such as (1)
changes in lending policies and procedures, including changes in underwriting standards and collections,
charge offs, and recovery practices, (2) changes in international, national, regional, and local conditions, (3)
changes in the nature and volume of the portfolio and terms of loans, (4) changes in the experience, depth,
and ability of lending management, (5) changes in the volume and severity of past due loans and other
similar conditions, (6) changes in the quality of the organization's loan review system, (7) changes in the
value of underlying collateral for collateral dependent loans, (8) the existence and effect of any
concentrations of credit and changes in the levels of such concentrations, and (9) the effect of other external
factors (i.e. competition, legal and regulatory requirements) on the level of estimated credit losses.
18
(1) Summary of Significant Accounting Policies (Continued)
Allowance for Loan Losses (Continued)
Loans identified as losses by management, internal loan review and/or Bank examiners are charged off. A
loan is considered impaired when, based on current information and events, it is probable that the Company
will be unable to collect the scheduled payments of principal or interest when due according to the
contractual terms of the loan agreement. Factors considered by management in determining impairment
include payment status, collateral value and the probability of collecting scheduled principal and interest
payments when due. Loans that experience insignificant payment delays and payment shortfalls generally
are not classified as impaired. Management determines the significance of payment delays and payment
shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and
the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment
record and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured
on a loan-by-loan basis by either the present value of expected future cash flows discounted at the loan’s
effective interest rate, the loan’s obtainable market price or the fair value of the collateral if the loan is
collateral dependent.
A significant portion of the Company’s impaired loans are deemed to be collateral dependent. Management
therefore measures impairment on these loans based on the fair value of the collateral. Collateral values are
determined based on appraisals performed by qualified licensed appraisers hired by the Company or by
senior members of the Company’s credit administration staff. The decision whether to obtain an external
third-party appraisal usually depends on the type of property being evaluated. External appraisals are usually
obtained on more complex, income producing properties such as hotels, shopping centers and businesses.
Less complex properties such as residential lots, farm land and single family houses may be evaluated
internally by senior credit administration staff. When the Company does obtain appraisals from external
third-parties, the values utilized in the impairment calculation are “as is” or current market values. The
appraisals, whether prepared internally or externally, may utilize a single valuation approach or a
combination of approaches including the comparable sales, income and cost approach. Appraised amounts
used in the impairment calculation are typically discounted 10 percent to account for selling and marketing
costs, if the repayment of the loan is to come from the sale of the collateral. Although appraisals may not be
obtained each year on all impaired loans, the collateral values used in the impairment calculations are
evaluated quarterly by management. Based on management’s knowledge of the collateral and the current
real estate market conditions, appraised values may be further discounted to reflect facts and circumstances
known to management since the initial appraisal was performed.
Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between
the comparable sales and income data available. Such adjustments are typically significant and result in a
level 3 classification of the inputs for determining fair value. Because of the high degree of judgment
required in estimating the fair value of collateral underlying impaired loans and because of the relationship
between fair value and general economic conditions, we consider the fair value of impaired loans to be
highly sensitive to changes in market conditions.
19
(1) Summary of Significant Accounting Policies (Continued)
Premises and Equipment
Premises and equipment are recorded at acquisition cost net of accumulated depreciation.
Depreciation is charged to operations over the estimated useful lives of the assets. The estimated useful lives
and methods of depreciation are as follows:
Description
Life in Years
Method
Banking Premises
Furniture and Equipment
15-40
5-10
Straight-Line and Accelerated
Straight-Line and Accelerated
Expenditures for major renewals and betterments are capitalized. Maintenance and repairs are charged to
operations as incurred. When property and equipment are retired or sold, the cost and accumulated
depreciation are removed from the respective accounts and any gain or loss is reflected in other income or
expense.
Other Intangible Assets
Intangible assets consist of core deposit intangibles acquired in connection with a business combination. The
core deposit intangible is initially recognized based on an independent valuation performed as of the
consummation date. The core deposit intangible is amortized by the straight-line method over the average
remaining life of the acquired customer deposits.
Transfers of Financial Assets
Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered.
Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the
Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of
that right) to pledge or exchange the transferred assets and (3) the Company does not maintain effective
control over the transferred assets through an agreement to repurchase them before their maturity.
Statement of Cash Flows
For reporting cash flows, cash and cash equivalents include cash on hand, noninterest-bearing amounts due
from banks, federal funds sold and securities purchased under agreement to resell. Cash flows from demand
deposits, interest-bearing checking accounts, savings accounts, loans and certificates of deposit are reported
net.
Advertising Costs
The Company expenses the cost of advertising in the periods in which those costs are incurred.
20
(1) Summary of Significant Accounting Policies (Continued)
Income Taxes
The provision for income taxes is based upon income for financial statement purposes, adjusted for
nontaxable income and nondeductible expenses. Deferred income taxes have been provided when different
accounting methods have been used in determining income for income tax purposes and for financial
reporting purposes.
Deferred tax assets and liabilities are recognized based on future tax consequences attributable to differences
arising from the financial statement carrying values of assets and liabilities and their tax basis. The
differences relate primarily to depreciable assets (use of different depreciation methods for financial
statement and income tax purposes) and allowance for loan losses (use of the allowance method for financial
statement purposes and the direct write-off method for tax purposes). In the event of changes in the tax laws,
deferred tax assets and liabilities are adjusted in the period of the enactment of those changes, with effects
included in the income tax provision. Deferred tax assets are reduced by a valuation allowance when, in the
opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not
be realized. The Company and its subsidiary file a consolidated federal income tax return. The subsidiary
pays its proportional share of federal income taxes to the Company based on its taxable income.
The Company’s federal and state income tax returns for tax years 2017, 2016, 2015 and 2014 are subject to
examination by the Internal Revenue Service (IRS) and the Georgia Department of Revenue, generally for
three years after filing.
Positions taken in the Company’s tax returns may be subject to challenge by the taxing authorities upon
examination. Uncertain tax positions are initially recognized in the consolidated financial statements when it
is more likely than not the position will be sustained upon examination by the tax authorities. Such tax
positions are both initially and subsequently measured as the largest amount of tax benefit that is greater than
50 percent likely of being realized upon settlement with the tax authority, assuming full knowledge of the
position and all relevant facts. The Company provides for interest and, in some cases, penalties on tax
positions that may be challenged by the taxing authorities. Interest expense is recognized beginning in the
first period that such interest would begin accruing. Penalties are recognized in the period that the Company
claims the position in the tax return. Interest and penalties on income tax uncertainties are classified within
income tax expense in the consolidated statements of operations.
Other Real Estate
Other real estate generally represents real estate acquired through foreclosure and is initially recorded at
estimated fair value at the date of acquisition less the cost of disposal. Losses from the acquisition of
property in full or partial satisfaction of debt are recorded as loan losses. Properties are evaluated regularly
to ensure the recorded amounts are supported by current fair values, and valuation allowances are recorded as
necessary to reduce the carrying amount to fair value less estimated cost of disposal. Routine holding costs
and gains or losses upon disposition are included in foreclosed property expense.
21
(1) Summary of Significant Accounting Policies (Continued)
Bank-Owned Life Insurance
The Company has purchased life insurance on the lives of certain key members of management and
directors. The life insurance policies are recorded at the amount that can be realized under the insurance
contract at the balance sheet date, which is the cash surrender value adjusted for other charges or amounts
due that are probable at settlement, if applicable. Increases in the cash surrender value are recorded as other
income in the consolidated statements of income. The cash surrender value of the insurance contracts is
recorded in other assets on the consolidated balance sheets in the amount of $17,088,693 and $15,419,269 as
of December 31, 2017 and 2016, respectively.
Comprehensive Income
Accounting principles generally require that recognized revenue, expenses, gains and losses be included in
net income. Certain changes in assets and liabilities, such as unrealized gains and losses on securities
available for sale, represent equity changes from economic events of the period other than transactions with
owners. Such items are considered components of other comprehensive income (loss). Accounting
standards codification requires the presentation in the consolidated financial statements of net income and all
items of other comprehensive income (loss) as total comprehensive income (loss).
Off-Balance Sheet Credit Related Financial Instruments
In the ordinary course of business, the Company has entered into commitments to extend credit, commercial
letters of credit and standby letters of credit. Such financial instruments are recorded on the consolidated
balance sheets when they are funded.
22
(1) Summary of Significant Accounting Policies (Continued)
Changes in Accounting Principles and Effects of New Accounting Pronouncements
ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The core principle of ASU 2014-09 is
to recognize revenues when promised goods or services are transferred to customers in an amount that
reflects the consideration to which an entity is expected to be entitled for those goods or services. ASU 2014-
09 defines a five-step process to achieve this core principle and, in doing so, it is possible more judgment and
estimates may be required within the revenue recognition process than required under existing U.S. GAAP,
including identifying performance obligations in the contract, estimating the amount of variable
consideration to include in the transaction price and allocating the transaction price to each performance
obligation. ASU 2014-09, as deferred one year by ASU 2015-14, is effective for the Company in the first
quarter of fiscal year 2018. The Company is currently evaluating the impact of the pending adoption of ASU
2014-09 on the consolidated financial statements.
ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of
Financial Assets and Financial Liabilities. ASU 2016-01, among other things, (i) requires equity
investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net
income, (ii) simplifies the impairment assessment of equity investments without readily determinable fair
values by requiring a qualitative assessment to identify impairment, (iii) eliminates the requirement for
public business entities to disclose the methods and significant assumptions used to estimate the fair value
that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet, (iv)
requires public business entities to use the exit price notion when measuring the fair value of financial
instruments for disclosure purposes, (v) requires an entity to present separately in other comprehensive
income the portion of the total change in the fair value of a liability resulting from a change in the
instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance
with the fair value option for financial instruments, (vi) requires separate presentation of financial assets and
financial liabilities by measurement category and form of financial asset on the balance sheet or the
accompanying notes to the financial statements and (viii) clarifies that an entity should evaluate the need for
a valuation allowance on a deferred tax asset related to available-for-sale. ASU 2016-01 will be effective for
the Company on January 1, 2018. The Company is currently evaluating the impact of the pending adoption
of ASU 2016-01 on the consolidated financial statements.
ASU 2016-02, Leases (Topic 842). This ASU requires lessees to put most leases on their balance sheets but
recognize expenses in the income statement in a manner similar to current accounting treatment. This ASU
changes the guidance on sale-leaseback transactions, initial direct costs and lease execution costs, and, for
lessors, modifies the classification criteria and the accounting for sales-type and direct financing leases. For
public business entities, this ASU is effective for annual periods beginning after December 15, 2018, and
interim periods therein. Entities are required to use a modified retrospective approach for leases that exist or
are entered into after the beginning of the earliest comparative period in the financial statements. The
Company is evaluating the impact of this ASU on its financial statements and disclosures.
23
(1) Summary of Significant Accounting Policies (Continued)
Changes in Accounting Principles and Effects of New Accounting Pronouncements (Continued)
ASU 2016-13, Financial Instruments – Credit Losses (Topic 326). This ASU sets forth a “current expected
credit loss” (CECL) model which requires the Company to measure all expected credit losses for financial
instruments held at the reporting date based on historical experience, current conditions and reasonable
supported forecasts. This replaces the existing incurred loss model and is applicable to the measurement of
credit losses on financial assets measured at amortized cost and applies to some off-balance sheet credit
exposures. This ASU is effective for fiscal years beginning after December 15, 2019, including interim
periods within those fiscal years. The Company is currently assessing the impact of the adoption of this ASU
on its consolidated financial statements.
ASU 2016-15, Statement of Cash Flows (Topic 230) - Classification of Certain Cash Receipts and Cash
Payments. ASU 2016-15 provides guidance related to certain cash flow issues in order to reduce the current
and potential future diversity in practice. ASU 2016-15 became effective for us on January 1, 2018 and is not
expected to have a significant impact on our financial statements.
ASU 2017-08, Premium Amortization on Purchased Callable Debt Securities. This ASU shortens the
amortization period for the premium on certain purchased callable debt securities to the earliest call date.
Today, entities generally amortize the premium over the contractual life of the security. The new guidance
does not change the accounting for purchased callable debt securities held at a discount; the discount
continues to be amortized to maturity. ASU No. 2017-08 is effective for interim and annual reporting
periods beginning after December 15, 2018; early adoption is permitted. The guidance calls for a modified
retrospective transition approach under which a cumulative-effect adjustment will be made to retained
earnings as of the beginning of the first reporting period in which the guidance is adopted. The Company is
currently evaluating the provisions of ASU No. 2017-08 to determine the potential impact the new standard
will have on the Company’s Consolidated Financial Statements.
ASU 2018-02, Income Statement – Reporting Comprehensive Income (Topic 220). Reclassification of
Certain Tax Effects from Accumulated Other Comprehensive Income. This ASU allows an entity to elect a
reclassification from accumulated other comprehensive income (AOCI) to retained earnings for stranded tax
effects resulting from the Tax Cuts and Jobs Act (TCJ Act). ASU 2018-02 is effective for all entities for
fiscal years beginning after December 15, 2018, and interim periods within those fiscal years, with early
adoption permitted. The Company elected to early adopt the provisions of ASU 2018-02 in the fourth
quarter of 2017 and, as a result, reclassified $1,068,295 from AOCI to retained earnings as of December 31,
2017.
24
(2) Cash and Balances Due from Banks
Components of cash and balances due from banks are as follows as of December 31:
Cash on Hand and Cash Items
Noninterest-Bearing Deposits with Other Banks
2017
2016
$ 9,746,132
13,399,004
$ 8,509,530
20,312,574
$23,145,136
$28,822,104
The Company is required to maintain reserve balances in cash or on deposit with the Federal Reserve Bank
based on a percentage of deposits. Reserve balances totaled approximately $1,515,000 and $1,417,000 at
December 31, 2017 and 2016, respectively.
(3) Investment Securities
Investment securities as of December 31, 2017 are summarized as follows:
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
Securities Available for Sale
U.S. Government Agencies
Mortgage-Backed
State, County and Municipal
Corporate
Asset-Backed
$354,931,318
4,493,085
2,047,517
992,641
$362,464,561
$258,049
22,835
12,483
-
$293,367
$(8,465,948)
(23,094)
-
(21,982)
$(8,511,024)
$346,723,419
4,492,826
2,060,000
970,659
$354,246,904
The amortized cost and fair value of investment securities as of December 31, 2017, by contractual maturity,
are shown hereafter. Expected maturities may differ from contractual maturities for certain investments
because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
This is often the case with mortgage-backed securities, which are disclosed separately in the table below.
Due in One Year or Less
Due After One Year Through Five Years
Due After Five Years Through Ten Years
Due After Ten Years
Securities
Available for Sale
Amortized
Cost
$ 301,299
4,668,954
877,788
1,685,202
$ 7,533,243
Fair
Value
$ 301,605
4,658,344
894,743
1,668,793
$ 7,523,485
Mortgage-Backed Securities
354,931,318
346,723,419
$362,464,561
$354,246,904
25
(3) Investment Securities (Continued)
Investment securities as of December 31, 2016 are summarized as follows:
Securities Available for Sale
U.S. Government Agencies
Mortgage-Backed
State, County and Municipal
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Fair
Value
$ 326,694,417
4,572,756
$ 75,743
18,350
$ (7,672,786)
(30,610)
$ 319,097,374
4,560,496
$ 331,267,173
$ 94,093
$ (7,703,396)
$ 323,657,870
Proceeds from sales of investments available for sale were $0 in 2017, $25,209,851 in 2016 and $28,273,634
in 2015. Gross realized gains totaled $0 in 2017, $391,976 in 2016 and $207,896 in 2015. Gross realized
losses totaled $0 in 2017, $6,753 in 2016 and $196,316 in 2015.
Investment securities having a carrying value totaling $175,484,021 and $144,853,885 as of December 31,
2017 and 2016, respectively, were pledged to secure public deposits and for other purposes.
Information pertaining to securities with gross unrealized losses at December 31, 2017 and 2016 aggregated
by investment category and length of time that individual securities have been in a continuous loss position,
follows:
December 31, 2017
U.S. Government Agencies
Mortgage-Backed
State, County and Municipal
Asset – Backed
December 31, 2016
U.S. Government Agencies
Mortgage-Backed
State, County and Municipal
Less Than 12 Months
Gross
Unrealized
Losses
Fair
Value
12 Months or Greater
Gross
Unrealized
Losses
Fair
Value
Total
Gross
Unrealized
Losses
Fair
Value
$120,139,340
2,598,344
970,659
$(1,655,223)
(23,094)
(21,982)
$190,196,101 $(6,810,725)
-
-
-
-
$310,335,441
2,598,344
970,659
$(8,465,948)
(23,094)
(21,982)
$123,708,343
$(1,700,299)
$190,196,101 $(6,810,725)
$313,904,444
$(8,511,024)
$174,200,881
3,487,647
$(3,459,564)
(30,610)
$107,481,698 $(4,213,222)
-
-
$281,682,579
3,487,647
$(7,672,786)
(30,610)
$177,688,528
$(3,490,174)
$107,481,698 $(4,213,222)
$285,170,226
$(7,703,396)
Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more
frequently when economic or market concerns warrant such evaluation. Consideration is given to (1) the
length of time and the extent to which the fair value has been less than cost, (2) the financial condition and
near-term prospects of the issuer and (3) the intent and ability of the Company to retain its investment in the
issuer for a period of time sufficient to allow for any anticipated recovery in fair value.
26
(3) Investment Securities (Continued)
At December 31, 2017, 130 securities have unrealized losses which have depreciated 2.64 percent from the
Company’s amortized cost basis. These securities are guaranteed by either the U.S. Government, other
governments or U.S. corporations.
In analyzing an issuer’s financial condition, management considers
whether the securities are issued by the federal government or its agencies, whether downgrades by bond
rating agencies have occurred and the results of reviews of the issuer’s financial condition. The unrealized
losses are largely due to increases in market interest rates over the yields available at the time the underlying
securities were purchased. As management has the ability to hold debt securities until maturity, or for the
foreseeable future if classified as available-for-sale, no declines are deemed to be other than temporary.
However, the Company did own one asset-backed security at December 31, 2017 which was completely
written off during prior years. This investment is comprised of one issuance of a trust preferred security and
has no book value.
(4) Loans
The following table presents the composition of loans, segregated by class of loans, as of December 31:
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
Total Loans
2017
2016
$ 48,122,263
16,442,581
$ 47,024,878
17,079,579
45,213,960
8,583,446
351,171,668
194,048,945
67,767,655
30,358,362
11,830,447
349,090,031
195,579,967
66,877,197
18,956,028
14,977,309
19,695,241
16,747,861
$765,283,855
$754,283,563
27
(4) Loans (Continued)
Commercial and agricultural loans are extended to a diverse group of businesses within the Company’s
market area. These loans are often underwritten based on the borrower’s ability to service the debt from
income from the business. Real estate construction loans often require loan funds to be advanced prior to
completion of the project. Due to uncertainties inherent in estimating construction costs, changes in interest
rates and other economic conditions, these loans often pose a higher risk than other types of loans.
Consumer loans are originated at the bank level. These loans are generally smaller loan amounts spread
across many individual borrowers to help minimize risk.
Credit Quality Indicators. As part of the ongoing monitoring of the credit quality of the loan portfolio,
management tracks certain credit quality indicators including trends related to (1) the risk grade assigned to
commercial and consumer loans, (2) the level of classified commercial loans, (3) net charge-offs, (4)
nonperforming loans, and (5) the general economic conditions in the Company’s geographic markets.
The Company uses a risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a
scale of 1 to 8. A description of the general characteristics of the grades is as follows:
• Grades 1 and 2 - Borrowers with these assigned grades range in risk from virtual absence of risk to
minimal risk. Such loans may be secured by Company-issued and controlled certificates of deposit or
properly margined equity securities or bonds. Other loans comprising these grades are made to
companies that have been in existence for a long period of time with many years of consecutive
profits and strong equity, good liquidity, excellent debt service ability and unblemished past
performance, or to exceptionally strong individuals with collateral of unquestioned value that fully
secures the loans. Loans in this category fall into the “pass” classification.
• Grades 3 and 4 - Loans assigned these “pass” risk grades are made to borrowers with acceptable
credit quality and risk. The risk ranges from loans with no significant weaknesses in repayment
capacity and collateral protection to acceptable loans with one or more risk factors considered to be
more than average.
• Grade 5 - This grade includes “special mention” loans on management’s watch list and is intended to
be used on a temporary basis for pass grade loans where risk-modifying action is intended in the
short-term.
• Grade 6 - This grade includes “substandard” loans in accordance with regulatory guidelines. This
category includes borrowers with well-defined weaknesses that jeopardize the payment of the debt in
accordance with the agreed terms. Loans considered to be impaired are assigned this grade, and these
loans often have assigned loss allocations as part of the allowance for loan and lease losses.
Generally, loans on which interest accrual has been stopped would be included in this grade.
• Grades 7 and 8 - These grades correspond to regulatory classification definitions of “doubtful” and
“loss,” respectively. In practice, any loan with these grades would be for a very short period of time,
and generally the Company has no loans with these assigned grades. Management manages the
Company’s problem loans in such a way that uncollectible loans or uncollectible portions of loans are
charged off immediately with any residual, collectible amounts assigned a risk grade of 6.
28
(4) Loans (Continued)
The following tables present the loan portfolio by credit quality indicator (risk grade) as of December 31.
Those loans with a risk grade of 1, 2, 3 or 4 have been combined in the pass column for presentation
purposes.
2017
Pass
Special Mention
Substandard
Total Loans
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
$ 46,468,726
15,868,191
$ 825,607
174,356
$ 827,930
400,034
$ 48,122,263
16,442,581
41,282,295
8,583,446
338,775,805
177,962,870
66,334,906
577,765
-
7,662,637
4,864,893
444,095
3,353,900
-
4,733,226
11,221,182
988,654
45,213,960
8,583,446
351,171,668
194,048,945
67,767,655
18,495,798
14,968,677
52,970
8,632
407,260
-
18,956,028
14,977,309
Total Loans
$728,740,714
$14,610,955
$21,932,186
$765,283,855
2016
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
$ 44,249,874
16,585,646
$ 1,861,757
192,445
$ 913,247
301,488
$ 47,024,878
17,079,579
28,425,373
11,630,165
327,561,169
178,618,510
65,074,715
1,349,447
-
9,403,077
5,658,526
839,362
583,542
200,282
12,125,785
11,302,931
963,120
30,358,362
11,830,447
349,090,031
195,579,967
66,877,197
19,071,739
16,747,861
225,959
-
397,543
-
19,695,241
16,747,861
Total Loans
$707,965,052
$19,530,573
$26,787,938
$754,283,563
A loan’s risk grade is assigned at the inception of the loan and is based on the financial strength of the
borrower and the type of collateral. Loan risk grades are subject to reassessment at various times throughout
the year as part of the Company’s ongoing loan review process. Loans with an assigned risk grade of 6 or
below and an outstanding balance of $250,000 or more are reassessed on a quarterly basis. During this
reassessment process individual reserves may be identified and placed against certain loans which are not
considered impaired. In assessing the overall economic condition of the markets in which it operates, the
Company monitors the unemployment rates for its major service areas. The unemployment rates are
reviewed on a quarterly basis as part of the allowance for loan loss determination.
29
(4) Loans (Continued)
Loans are considered past due if the required principal and interest payments have not been received as of the
date such payments were due. Generally, loans are placed on nonaccrual status if principal or interest
payments become 90 days past due or when, in management’s opinion, the borrower may be unable to meet
payment obligations as they become due, as well as when required by regulatory provision. Loans may be
placed on nonaccrual status regardless of whether such loans are considered past due.
The following table represents an age analysis of past due loans and nonaccrual loans, segregated by class of
loans, as of December 31:
2017
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
Accruing Loans
30-89 Days
Past Due
90 Days
or More
Past Due
Total Accruing
Loans Past Due
Nonaccrual
Loans
Current
Loans
Total Loans
$ 328,483
110,482
$
27,062
119,443
918,997
2,482,276
318,329
246,175
7,158
-
-
-
-
-
-
-
-
$ 328,483
110,482
$598,305
398,509
$ 47,195,475
15,933,590
$ 48,122,263
16,442,581
27,062
119,443
918,997
2,482,276
318,329
477,043
-
2,172,229
2,829,966
838,577
44,709,855
8,464,003
348,080,442
188,736,703
66,610,749
45,213,960
8,583,446
351,171,668
194,048,945
67,767,655
246,175
7,158
188,073
-
18,521,780
14,970,151
18,956,028
14,977,309
Total Loans
$4,558,405
$ -
$4,558,405
$7,502,702
$753,222,748
$765,283,855
$ 419,969
33,046
$
54,001
-
491,468
3,178,833
95,309
-
-
-
-
-
-
-
$ 419,969
33,046
$ 634,955
208,522
$ 45,969,954 $ 47,024,878
17,079,579
16,838,011
54,001
-
491,468
3,178,833
95,309
190,494
-
6,360,176
3,944,337
799,556
30,113,867
11,830,447
342,238,387
188,456,797
65,982,332
30,358,362
11,830,447
349,090,031
195,579,967
66,877,197
196,242
-
122
-
196,364
-
212,026
-
19,286,851
16,747,861
19,695,241
16,747,861
$4,468,868
$ 122
$4,468,990
$12,350,066
$737,464,507 $754,283,563
2016
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
Total Loans
30
(4) Loans (Continued)
Had nonaccrual loans performed in accordance with their original contractual terms, the Company would
have recognized additional interest income of approximately $205,000, $387,300 and $418,400 for the years
ended December 31, 2017, 2016 and 2015, respectively.
The following table details impaired loan data as of December 31, 2017:
Unpaid
Contractual
Principal
Balance
Impaired
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
Interest
Income
Collected
With No Related Allowance Recorded
Commercial
Agricultural
Commercial Construction
Residential Construction
Commercial Real Estate
Residential Real Estate
Farmland
Consumer
With An Allowance Recorded
Commercial
Agricultural
Commercial Construction
Residential Construction
Commercial Real Estate
Residential Real Estate
Farmland
Consumer
Total
Commercial
Agricultural
Commercial Construction
Residential Construction
Commercial Real Estate
Residential Real Estate
Farmland
Consumer
$
$
$
$ 598,305
485,132
54,306
-
12.637,057
4,977,769
840,110
188,073
$ 598,305
398,509
54,306
-
12,637,057
4,579,614
838,577
188,073
$19,780,752
$19,294,441
$ -
-
493,067
-
5,729,300
108,859
371,376
-
$ -
-
493,067
-
5,729,300
108,859
371,376
-
-
-
-
-
-
-
-
-
$ 633,528
296,578
141,396
79,295
12,808,414
4,566,041
790,967
186,348
$ 33,283
11,046
3,526
-
559,601
211,318
54,367
8,576
$ 33,868
19,376
3,836
-
549,825
226,684
58,085
9,452
-
$19,502,567
$ 881,717
$ 901,126
-
-
65,635
-
1,712,557
27,123
21,369
-
$ -
-
241,063
-
6,599,144
482,228
375,595
-
$
-
-
22,626
-
228,745
4,261
22,121
-
$
-
-
32,922
-
237,066
7,446
22,021
-
$ 6,702,602
$ 6,702,602
$1,826,684
$ 7,698,030
$ 277,753
$ 299,455
$ 598,305
485,132
547,373
-
18,366,357
5,086,628
1,211,486
188,073
$ 598,305
398,509
547,373
-
18,366,357
4,688,473
1,209,953
188,073
$
-
-
65,635
-
1,712,557
27,123
21,369
-
$ 633,528
296,578
382,459
79,295
19,407,558
5,048,269
1,166,562
186,348
$ 33,283
11,046
26,152
-
788,346
215,579
76,488
8,576
$ 33,868
19,376
36,758
-
786,891
234,130
80,106
9,452
$26,483,354
$ 25,997,043
$ 1,826,684
$27,200,597
$1,159,470
$1,200,581
31
(4) Loans (Continued)
The following table details impaired loan data as of December 31, 2016:
Unpaid
Contractual
Principal
Balance
Impaired
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
Interest
Income
Collected
With No Related Allowance Recorded
Commercial
Agricultural
Commercial Construction
Commercial Real Estate
Residential Real Estate
Farmland
Consumer
$
$ 634,955
229,182
190,494
14,357,601
4,261,558
920,666
212,376
$ 634,955
208,522
190,494
14,276,688
3,952,139
799,556
212,026
$20,806,832
$ 20,274,380
$
-
-
-
-
-
-
-
-
$ 539,099
210,372
697,893
14,274,719
4,553,322
1,016,395
213,309
$ 24,563
8,794
6,630
567,349
73,099
21,526
9,599
$
27,142
12,412
7,127
560,354
190,373
26,012
12,036
$ 21,505,109
$ 711,560
$ 835,456
With An Allowance Recorded
Commercial
Agricultural
Commercial Construction
Commercial Real Estate
Residential Real Estate
Farmland
Consumer
Total
Commercial
Agricultural
Commercial Construction
Commercial Real Estate
Residential Real Estate
Farmland
Consumer
$ -
-
72,296
8,557,582
1,475,594
379,851
-
$ -
-
72,296
8,467,135
1,467,833
379,851
-
$ -
-
21,135
3,021,943
362,521
29,173
-
$
30,270
-
74,098
8,339,666
1,042,750
384,056
-
$ -
-
1,532
238,684
27,759
21,098
-
$ -
-
1,416
235,749
32,260
21,310
-
$10,485,323
$ 10,387,115
$ 3,434,772
$ 9,870,840
$ 289,073
$ 290,735
$
634,955
229,182
262,790
22,915,183
5,737,152
1,300,517
212,376
$
634,955
208,522
262,790
22,743,823
5,419,972
1,179,407
212,026
$ -
-
21,135
3,021,943
362,521
29,173
-
$
569,369
210,372
771,991
22,614,385
5,596,072
1,400,451
213,309
$
24,563
8,794
8,162
806,033
100,858
42,624
9,599
$ 27,142
12,412
8,543
796,103
222,633
47,322
12,036
$31,292,155
$ 30,661,495
$ 3,434,772
$ 31,375,949 $ 1,000,633
$1,126,191
32
(4) Loans (Continued)
The following table details impaired loan data as of December 31, 2015:
Unpaid
Contractual
Principal
Balance
Impaired
Balance
Related
Allowance
Average
Recorded
Investment
Interest
Income
Recognized
Interest
Income
Collected
With No Related Allowance Recorded
Commercial
Agricultural
Commercial Construction
Commercial Real Estate
Residential Real Estate
Farmland
Consumer
Other
$
$
454,423
195,654
6,887,522
15,569,340
5,429,121
1,104,887
179,908
-
$ 454,013
178,021
1,896,938
15,122,486
4,575,547
1,103,353
178,435
-
$29,820,855
$23,508,793
$
-
-
-
-
-
-
-
-
-
$ 534,814
163,078
2,867,061
15,430,252
4,715,162
1,339,863
190,566
48,438
$ 17,259
(9,957)
25,788
529,376
175,484
583
13,745
-
$ 21,253
10,334
27,007
530,699
159,148
2,076
14,907
-
$25,289,234
$ 752,278
$ 765,424
With An Allowance Recorded
Commercial
Agricultural
Commercial Construction
Commercial Real Estate
Residential Real Estate
Farmland
Consumer
Other
Total
Commercial
Agricultural
Commercial Construction
Commercial Real Estate
Residential Real Estate
Farmland
Consumer
Other
$
122,928
-
76,644
8,969,329
1,083,127
387,968
-
-
$
122,928
-
76,644
8,955,503
1,075,367
387,969
-
-
$
94,538
-
25,344
1,607,962
308,188
37,386
-
-
$
99,749
-
92,200
6,673,087
1,088,380
391,060
-
-
$
2,275
-
375
213,693
16,380
20,880
-
-
$
2,438
-
375
208,657
15,873
20,954
-
-
$10,639,996
$10,618,411
$2,073,418
$ 8,344,476
$ 253,603
$ 248,297
$
577,351
195,654
6,964,166
24,538,669
6,512,248
1,492,855
179,908
-
$
576,941
178,021
1,973,582
24,077,989
5,650,914
1,491,322
178,435
-
$
94,538
-
25,344
1,607,962
308,188
37,386
-
-
$
634,563
163,078
2,959,261
22,103,339
5,803,542
1,730,923
190,566
48,438
$
19,534
(9,957)
26,163
743,069
191,864
21,463
13,745
-
$
23,691
10,334
27,382
739,356
175,021
23,030
14,907
-
$40,460,851
$34,127,204
$2,073,418
$33,633,710
$1,005,881
$1,013,721
33
(4) Loans (Continued)
Troubled Debt Restructurings (TDRs) are troubled loans on which the original terms of the loan have been
modified in favor of the borrower due to deterioration in the borrower’s financial condition. Each potential
loan modification is reviewed individually and the terms of the loan are modified to meet the borrower’s
specific circumstances at a point in time. Not all loan modifications are TDRs. Loan modifications are
reviewed and approved by the Company’s senior lending staff, who then determine whether the loan meets
the criteria for a TDR. Generally, the types of concessions granted to borrowers that are evaluated in
determining whether a loan is classified as a TDR include:
•
Interest rate reductions - Occur when the stated interest rate is reduced to a nonmarket rate or a rate
the borrower would not be able to obtain elsewhere under similar circumstances.
• Amortization or maturity date changes - Result when the amortization period of the loan is extended
beyond what is considered a normal amortization period for loans of similar type with similar
collateral.
• Principal reductions - These are often the result of commercial real estate loan workouts where two
new notes are created. The primary note is underwritten based upon the Company’s normal
underwriting standards and is structured so that the projected cash flows are sufficient to repay the
contractual principal and interest of the newly restructured note. The terms of the secondary note
vary by situation and often involve that note being charged off, or the principal and interest payments
being deferred until after the primary note has been repaid. In situations where a portion of the note
is charged off during modification, there is often no specific reserve allocated to those loans. This is
due to the fact that the amount of the charge-off usually represents the excess of the original loan
balance over the collateral value and the Company has determined there is no additional exposure on
those loans.
34
(4) Loans (Continued)
As discussed in Note 1, Summary of Significant Accounting Policies, once a loan is identified as a TDR, it is
accounted for as an impaired loan. The Company had no unfunded commitments to lend to a customer that
has a troubled debt restructured loan as of December 31, 2017. The following tables present the number of
loan contracts restructured during the 12 months ended December 31, 2017, 2016 and 2015. It shows the
pre- and post-modification recorded investment as well as the number of contracts and the recorded
investment for those TDRs modified during the previous 12 months which subsequently defaulted during the
period. Loans modified in a troubled debt restructuring are considered to be in default once the loan
becomes 90 days past due. A TDR may cease being classified as impaired if the loan is subsequently
modified at market terms, has performed according to the modified terms for at least six months, and has not
had any prior principal forgiveness on a cumulative basis.
Troubled Debt Restructurings
2017
# of Contracts
Pre-Modification Post-Modification
Commercial Real Estate
Residential Real Estate
Total Loans
2016
Commercial Real Estate
Residential Real Estate
Total Loans
2015
Commercial Real Estate
Residential Real Estate
Total Loans
-
-
-
1
1
2
1
2
3
$
$
-
-
-
$
$
-
-
-
$ 91,280
354,784
$ 91,097
354,784
$ 446,064
$ 445,881
$ 513,868
1,106,345
$ 505,978
1,035,590
$1,620,213
$1,541,568
35
(4) Loans (Continued)
Troubled debt restructurings that subsequently defaulted as of December 31 are as follows:
2017
2016
2015
# of
Contracts
Recorded
Investment
# of
Contracts
Recorded
Investment
# of
Contracts
Recorded
Investment
Residential Real Estate
Total Loans
-
-
$
$
-
-
1
1
$ 89,297
$ 89,297
-
-
$
$
-
-
At December 31, 2017, all restructured loans were performing as agreed. During December 2016, a
restructured loan totaling $89,297 failed to continue to perform as agreed and was charged off in June 2016.
At December 31, 2015, all restructured loans were performing as agreed.
(5) Allowance for Loan Losses
Changes in the allowance for loan losses for the years ended December 31 are as follows:
2017
2016
2015
Balance, Beginning of Year
$8,923,293
$8,603,905
$8,802,316
Provision for Loan Losses
Loans Charged Off
Recoveries of Loans Previously Charged Off
390,000
(2,915,753)
1,109,968
1,062,000
(2,087,850)
1,345,238
865,500
(2,083,347)
1,019,436
Balance, End of Year
$7,507,508
$8,923,293
$8,603,905
36
(5) Allowance for Loan Losses (Continued)
The following tables detail activity in the allowance for loan losses, segregated by class of loan, for the years
ended December 31. Allocation of a portion of the allowance to one category of loans does not preclude its
availability to absorb losses in other loan categories and periodically may result in reallocation within the
provision categories.
2017
Beginning
Balance
Charge-Offs Recoveries
Provision
Ending
Balance
Commercial and Agricultural
Commercial
Agricultural
Real Estate
$ 456,197
167,692
$ (299,079)
(159,500)
$ 136,499
3,963
$ 153,058
173,749
$ 446,675
185,904
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
322,725
13,491
5,750,998
1,396,099
722,331
(51,977)
-
(966,014)
(1,048,337)
(60,902)
266,459
-
527,150
82,079
16,750
678,808
(13,491)
(1,438,175)
538,260
101,352
1,216,015
-
3,873,959
968,101
779,531
Consumer and Other
Consumer
Other
2016
Commercial and Agricultural
Commercial
Agricultural
Real Estate
80,265
13,495
(329,944)
-
74,933
2,135
208,739
(12,300)
33,993
3,330
$ 8,923,293
$(2,915,753)
$1,109,968
$ 390,000
$ 7,507,508
$ 855,364
203,091
$ (304,918)
(19,258)
$ 66,738 $ (160,987)
(20,291)
4,150
$ 456,197
167,692
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
690,766
19,890
3,850,527
1,990,355
911,692
(25,318)
-
(992,067)
(361,630)
(119,576)
814,586
-
206,154
49,660
145,000
(1,157,309)
(6,399)
2,686,384
(282,286)
(214,785)
322,725
13,491
5,750,998
1,396,099
722,331
Consumer and Other
Consumer
Other
63,377
18,843
(265,083)
-
52,629
6,321
229,342
(11,669)
80,265
13,495
$ 8,603,905
$ (2,087,850)
$1,345,238 $ 1,062,000
$ 8,923,293
37
(5) Allowance for Loan Losses (Continued)
2015
Beginning
Balance
Charge-Offs Recoveries
Provision
Ending
Balance
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
$ 497,561
304,172
$ (454,971)
(5,000)
$ 52,111
3,600
$760,663
(99,681)
$ 855,364
203,091
1,222,695
138,092
3,664,777
2,425,327
103,800
(97,698)
-
(275,297)
(929,668)
(40,000)
485,834
-
270,003
109,626
20,000
(920,065)
(118,202)
191,044
385,070
827,892
690,766
19,890
3,850,527
1,990,355
911,692
66,914
378,978
(255,062)
(25,651)
61,976
16,286
189,549
(350,770)
63,377
18,843
$8,802,316
$(2,083,347)
$1,019,436
$865,500
$8,603,905
The Company’s allowance for loan losses consists of specific valuation allowances established for probable
losses on specific loans and historical valuation allowances for other loans with similar risk characteristics.
During the first quarter of 2016 Company management implemented a change to its allowance for loan loss
methodology by expanding the historical loss period from a rolling 8 quarters to 16 quarters. Management
believes the longer historical loss period better reflects the current and expected loss behavior of the loan
portfolio within the current credit cycle. The transition to a rolling 16 quarter loss period was completed in
the first quarter of 2017. As of December 31, 2017, this change in the historical loss period resulted in a
decrease to the allowance for loan losses of $114,144. The loss history period used at December 31, 2016
and 2015 was based on the loss rate from the eight quarters ended September 30, 2016 and 2015,
respectively.
Effective with the quarter ended June 30, 2015, the calculation of the amount needed in the Allowance for
Loan Losses changed. Management determined that the segmentation method for the ASC 450-20 portion of
the loan portfolio should be changed to bank call report categories. Prior to this change, the ASC 450-20
segmentation categorized loans by various non-owner occupied commercial real estate loan types and risk
grades for the remainder of the ASC 450-20 portion of the portfolio. On the date of change, June 30, 2015,
the change in methodology resulted in an increase to the calculated allowance for loan loss reserve of
$1,621,424.
38
(5) Allowance for Loan Losses (Continued)
Management feels these changes better align the calculation of the allowance for loan losses with the
direction of the loan portfolio. These changes did not result in a significant change to the recorded allowance
for loan loss balance.
The Company determines its individual reserves during its quarterly review of substandard loans. This
process involves reviewing all loans with a risk grade of 6 or greater and an outstanding balance of $250,000
or more, regardless of the loans impairment classification.
Since not all loans in the substandard category are considered impaired, this quarterly review process may
result in the identification of specific reserves on nonimpaired loans. Management considers those loans
graded substandard, but not classified as impaired, to be higher risk loans and, therefore, makes specific
allocations to the allowance for those loans if warranted. The total of such loans is $9,470,621 and
$10,786,699 as of December 31, 2017 and 2016, respectively. Specific allowance allocations were made for
these loans totaling $1,510,868 and $632,706 as of December 31, 2017 and 2016, respectively. Since these
loans are not considered impaired, both the loan balance and related specific allocation are included in the
“Collectively Evaluated for Impairment” column of the following tables.
At December 31, 2017, there were 149 impaired loans totaling $4,335,524 below the $250,000 review
threshold which were not individually reviewed for impairment. Those loans were subject to the Bank’s
general loan loss reserve methodology and are included in the “Collectively Evaluated for Impairment”
column of the following tables. Likewise, at December 31, 2016 and 2015, impaired loans totaling
$4,204,156 and $3,744,733, respectively, were below the $250,000 review threshold and were subject to the
Bank’s general loan loss reserve methodology and are included in the “Collectively Evaluated for
Impairment” column of the following tables.
2017
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
Ending Allowance Balance
Collectively
Evaluated for
Impairment
Individually
Evaluated for
Impairment
Total
Individually
Evaluated for
Impairment
Ending Loan Balance
Collectively
Evaluated for
Impairment
Total
$ -
-
$ 446,675
185,904
$ 446,675
185,904
$ 77,599
5,121
$ 48,044,664
16,437,460
$ 48,122,263
16,442,581
65,635
-
1,712,557
27,123
21,369
1,150,380
-
2,161,402
940,978
758,162
1,216,015
-
3,873,959
968,101
779,531
493,067
-
18,010,035
2,040,125
1,035,572
44,720,893
8,583,446
333,161,633
192,008,820
66,732,083
45,213,960
8,583,446
351,171,668
194,048,945
67,767,655
-
-
33,993
3,330
33,993
3,330
-
-
18,956,028
14,977,309
18,956,028
14,977,309
Total End of Year Balance
$1,826,684
$ 5,680,824
$ 7,507,508
$21,661,519
$743,622,336
$765,283,855
39
(5) Allowance for Loan Losses (Continued)
2016
Individually
Evaluated for
Impairment
Ending Allowance Balance
Collectively
Evaluated for
Impairment
Total
Individually
Evaluated for
Impairment
Ending Loan Balance
Collectively
Evaluated for
Impairment
Total
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
$ -
-
$ 456,197
167,692
$ 456,197
167,692
$ 6,671
-
$ 47,018,207
17,079,579
$ 47,024,878
17,079,579
21,135
-
3,021,943
362,522
29,172
301,590
13,491
2,729,055
1,033,577
693,159
322,725
13,491
5,750,998
1,396,099
722,331
72,296
-
22,422,451
2,911,874
1,044,047
30,286,066
11,830,447
326,667,580
192,668,093
65,833,150
30,358,362
11,830,447
349,090,031
195,579,967
66,877,197
-
-
80,265
13,495
80,265
13,495
-
-
19,695,241
16,747,861
19,695,241
16,747,861
Total End of Year Balance
$ 3,434,772
$ 5,488,521
$ 8,923,293
$ 26,457,339
$ 727,826,224
$ 754,283,563
2015
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
$ 94,538
-
$ 760,826
203,091
$ 855,364
203,091
$ 122,928
8,445
$ 47,658,761
19,185,052
$ 47,781,689
19,193,497
25,344
-
1,607,962
308,188
37,386
665,422
19,890
2,242,565
1,682,167
874,306
690,766
19,890
3,850,527
1,990,355
911,692
1,622,560
-
23,628,213
3,597,386
1,402,939
38,484,073
9,413,263
322,633,820
193,405,033
60,376,920
40,106,633
9,413,263
346,262,033
197,002,419
61,779,859
-
-
63,377
18,843
63,377
18,843
-
-
20,605,465
16,490,737
20,605,465
16,490,737
Total End of Year Balance
$ 2,073,418
$ 6,530,487
$ 8,603,905
$ 30,382,471
$ 728,253,124
$ 758,635,595
40
(6) Premises and Equipment
Premises and equipment are comprised of the following as of December 31:
Land
Building
Furniture, Fixtures and Equipment
Leasehold Improvements
Construction in Progress
Accumulated Depreciation
2017
2016
$9,668,722
26,893,354
13,090,366
655,166
68,253
$ 9,668,722
25,239,165
12,461,043
653,939
1,530,359
50,375,861
(22,736,431)
49,553,228
(21,583,968)
$27,639,430
$27,969,260
Depreciation charged to operations totaled $1,647,813 in 2017, $1,574,249 in 2016 and $1,657,229 in 2015.
Certain Company facilities and equipment are leased under various operating leases. Rental expense
approximated $427,000 for 2017, $437,000 for 2016 and $560,000 for 2015.
Future minimum rental payments as of December 31, 2017 are as follows:
Year Ending December 31
2018
2019
2020
2021
2022 and Thereafter
Amount
$ 43,320
42,000
42,000
42,000
38,500
$207,820
(7) Other Real Estate Owned
The aggregate carrying amount of Other Real Estate Owned (OREO) at December 31, 2017, 2016 and 2015
was $4,256,469, $6,439,226 and $8,839,103, respectively. All of the Company’s other real estate owned
represents properties acquired through foreclosure or deed in lieu of foreclosure. The following table details
the change in OREO during 2017, 2016 and 2015 as of December 31:
Balance, Beginning of Year
$ 6,439,226
$ 8,839,103
$10,401,832
2017
2016
2015
Additions
Sales of OREO
Loss on Sale
Provision for Losses
Balance, End of Year
1,724,936
(3,786,567)
212,641
(333,767)
5,664,554
(7,416,293)
(146,402)
(501,736)
7,536,165
(8,054,675)
(591,071)
(453,148)
$ 4,256,469
$ 6,439,226
$ 8,839,103
41
(7) Other Real Estate Owned (Continued)
At December 31, 2017, the Company held $479,352 of residential real estate property as foreclosed property.
Also at December 31, 2017, $183,588 of consumer mortgage loans collateralized by residential real estate
property was in the process of foreclosure according to local requirements of the applicable jurisdictions.
(8) Other Intangible Assets
The following is an analysis of the core deposit intangible activity for the years ended December 31:
Core Deposit Intangible
Balance, December 31, 2015
Core Deposit
Intangible
Accumulated
Amortization
Net Core
Deposit
Intangible
$1,056,693
$(940,429)
$116,264
Amortization Expense
-
(35,749)
(35,749)
Balance, December 31, 2016
$1,056,693
$(976,178)
$ 80,515
Amortization Expense
-
(35,749)
(35,749)
Balance, December 31, 2017
$1,056,693
$(1,011,927)
$ 44,766
Amortization expense related to the core deposit intangible was $35,749, $35,749 and $35,748 for the years
ended December 31, 2017, 2016 and 2015. Amortizations expense will continue at an annual rate of
approximately $35,749 through the first quarter of 2019, at which point the core deposit will be fully
amortized.
(9) Income Taxes
The Tax Cuts and Jobs Act (the "TCJ Act"), enacted on December 22, 2017, reduced the U.S. federal
corporate tax rate to 21 percent. As a result of the enactment of the TCJ Act we have remeasured our
deferred tax assets and liabilities based upon the new U.S. statutory federal income tax rate of 21%, which is
the tax rate at which these assets and liabilities are expected to reverse in the future. Notwithstanding the
foregoing, we are still analyzing certain aspects of the new law and refining our calculations, which could
affect the measurement of these assets and liabilities or give rise to new deferred tax amounts. Nonetheless,
we recognized additional income tax expense of $2,040,946 in the fourth quarter of 2017 related to the
remeasurement of our deferred tax assets and liabilities.
42
(9) Income Taxes (Continued)
The components of income tax expense for the years ended December 31 are as follows:
2017
2016
2015
Current Federal Expense
Deferred Federal Expense
Deferred Tax Expense from Tax Rate Changes
$3,943,495
793,012
2,040,946
$3,629,213
222,120
-
$3,162,367
625,436
-
Federal Income Tax Expense
Current State Income Tax Expense
6,777,453
3,851,333
3,787,803
-
-
-
Federal and State Income Tax Expense
$6,777,453
$3,851,333
$3,787,803
The federal income tax expense of $6,777,453 in 2017, $3,851,333 in 2016 and $3,787,803 in 2015 is
different than the income taxes computed by applying the federal statutory rates to income before income
taxes. The reasons for the differences are as follows:
2017
2016
2015
Statutory Federal Income Taxes
Tax-Exempt Interest
Income from Cash Value Life Insurance, net of premiums
Meal and Entertainment Disallowance
Other
Tax Expense from Tax Rate Changes
$4,954,199
(102,345)
(198,730)
14,354
69,029
2,040,946
$4,283,394
(109,759)
(182,532)
16,813
(156,583)
-
$4,134,570
(83,903)
(232,988)
21,600
(51,476)
-
Actual Federal Income Taxes
$6,777,453
$3,851,333
$3,787,803
43
(9) Income Taxes (Continued)
Deferred taxes, which are included in Other Assets, in the accompanying consolidated balance sheets as of
December 31 include the following:
Deferred Tax Assets
Allowance for Loan Losses
Other Real Estate
Deferred Compensation
Investments
Goodwill
Other
Deferred Tax Liabilities
Premises and Equipment
Other
Deferred Tax Assets (Liabilities) on
Unrealized Securities Gains (Losses)
Net Deferred Tax Assets
(10) Deposits
2017
2016
$1,576,577
304,813
161,000
210,000
76,058
237,591
$3,033,920
688,162
280,704
340,000
167,666
379,304
$2,566,039
4,889,756
(995,190)
(2,585)
(1,553,460)
(4,185)
(997,775)
(1,557,645)
1,725,708
2,587,163
$3,293,972
$5,919,274
The aggregate amount of overdrawn deposit accounts reclassified as loan balances totaled $475,161 and
$413,563 as of December 31, 2017 and 2016, respectively.
Components of interest-bearing deposits as of December 31 are as follows:
Interest-Bearing Demand
Savings
Time, $250,000 and Over
Other Time
2017
2016
$458,717,332
78,172,441
38,919,469
301,248,235
$448,003,985
70,066,140
32,168,191
335,059,579
$877,057,477
$885,297,895
At December 31, 2017 and 2016, the Company had brokered deposits of $46,328,995 and $49,303,139,
respectively. All of these brokered deposits represent Certificate of Deposit Account Registry Service
(CDARS) reciprocal deposits. The CDARS deposits are ones in which customers placed core deposits into
the CDARS program for FDIC insurance coverage and the Company receives reciprocal brokered deposits in
a like amount. The aggregate amount of jumbo certificates of deposit, each with a minimum denomination
of $250,000 was $38,919,469 and $32,168,191 as of December 31, 2017 and December 31, 2016,
respectively.
44
(10) Deposits (Continued)
As of December 31, 2017, the scheduled maturities of certificates of deposit are as follows:
Year
2018
2019
2020
2021
2022 and Thereafter
Amount
$255,574,623
41,210,289
22,116,817
11,206,127
10,059,848
$340,167,704
(11) Other Borrowed Money
Other borrowed money at December 31 is summarized as follows:
Federal Home Loan Bank Advances
Other Borrowings
2017
2016
$46,000,000
1,500,000
$47,500,000
$46,000,000
-
$46,000,000
Advances from the Federal Home Loan Bank (FHLB) have maturities ranging from 2018 to 2026 and
interest rates ranging from 0.98 percent to 3.51 percent. As collateral on the outstanding FHLB advances,
the Company has provided a blanket lien on its portfolio of qualifying residential first mortgage loans and
commercial loans. At December 31, 2017, the book value of those loans pledged is $109,771,074. At
December 31, 2017, the Company had remaining credit availability from the FHLB of $252,395,250. The
Company may be required to pledge additional qualifying collateral in order to utilize the full amount of the
remaining credit line.
The Company borrowed $5,000,000 during the first quarter of 2017 as a short term loan to be paid off within
one year with an interest rate of prime plus 0.75 percent, currently 5.25 percent. The Company paid down
$3,500,000 during November 2017. The remaining amount was paid off during January 2018. As of
December 31, 2017, the balance of $1,500,000 is included in Other Borrowings.
The aggregate stated maturities of other borrowed money at December 31, 2017 are as follows:
Year
2018
2019
2020
2021
2022
2023 and Thereafter
Amount
$ 4,000,000
5,000,000
2,500,000
-
27,000,000
9,000,000
$47,500,000
45
(11) Other Borrowed Money (Continued)
At December 31, 2017, $13,000,000 of FHLB advances are subject to fixed rates of interest, while the
remaining $33,000,000 is subject to floating interest rates which will convert to fixed rates of interests in the
next few years.
The Company also has available federal funds lines of credit with various financial institutions totaling
$43,500,000, of which there were none outstanding at December 31, 2017.
The Company has the ability to borrow funds from the Federal Reserve Bank (FRB) of Atlanta utilizing the
discount window. The discount window is an instrument of monetary policy that allows eligible institutions
to borrow money from the FRB on a short-term basis to meet temporary liquidity shortages caused by
internal or external disruptions. At December 31, 2017, the Company had borrowing capacity available
under this arrangement, with no outstanding balances. The Company would be required to pledge certain
available-for-sale investment securities as collateral under this agreement.
(12) Subordinated Debentures (Trust Preferred Securities)
Description
Date
3-Month
Amount Libor Rate
Added
Points
(In Thousands)
Total
Interest
Rate
5-Year
Maturity Call Option
Colony Bankcorp Statutory Trust III
Colony Bankcorp Capital Trust I
Colony Bankcorp Capital Trust II
Colony Bankcorp Capital Trust III
6/17/2004
4/13/2006
3/12/2007
9/14/2007
$4,640
5,155
9,279
5,155
1.60042
1.69465
1.69465
1.37796
2.68
1.50
1.65
1.40
4.28042
3.19465
3.34465
2.77796
6/14/2034
4/13/2036
3/12/2037
9/14/2037
6/17/2009
4/13/2011
3/12/2012
9/14/2012
The Trust Preferred Securities are recorded as subordinated debentures on the consolidated balance sheets,
and subject to certain limitations, qualify as Tier 1 Capital for regulatory capital purposes. The proceeds
from these offerings were used to fund certain acquisitions, pay off holding company debt and inject capital
into the Bank subsidiary. The Trust Preferred Securities pay interest quarterly.
(13) Preferred Stock
At December 31, 2016, 9,360 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the
Preferred Stock) was outstanding with private investors. On March 31, 2017 the Company redeemed these
9,360 shares of Preferred Stock at the stated rate of $1,000 per share. Previously, the Company redeemed
8,661 shares in 2016 and 9,979 shares in 2015, all at the stated rate of $1,000 per share. As a result, there is
no outstanding Preferred Stock as of December 31, 2017. While outstanding, the Preferred Stock qualified
as Tier I Capital and was nonvoting, other than class voting rights on certain matters that could adversely
affect the Preferred Stock. The Preferred Stock paid cumulative cash dividends on a quarterly basis at a rate
of 9 percent per annum for the years 2017, 2016 and 2015.
The Company issued a warrant (the Warrant) to private investors for the purchase of up to 500,000 shares of
the Company’s outstanding common stock. The Warrant originated in 2009 through transactions with the
United States Department of the Treasury in conjunction with the issuance of the Preferred Stock. The
Warrant may be exercised on or before January 9, 2019 at an exercise price of $8.40 per share. No voting
rights may be exercised with respect to the shares of the Warrant until the Warrant has been exercised.
46
(14) Employee Benefit Plan
The Company offers a defined contribution 401(k) Profit Sharing Plan (the Plan) which covers substantially
all employees who meet certain age and service requirements. The Plan allows employees to make voluntary
pre-tax salary deferrals to the Plan. The Company, at its discretion, may elect to make an annual contribution
to the Plan equal to a percentage of each participating employee’s salary. Such discretionary contributions
must be approved by the Company’s board of directors. Employees are fully vested in the Company
contributions after six years of service. In 2017, 2016 and 2015, the Company made total contributions of
$686,580, $408,303 and $385,453 to the Plan, respectively.
(15) Commitments and Contingencies
Credit-Related Financial Instruments. The Company is a party to credit-related financial instruments with
off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit, standby letters of credit and commercial letters
of credit. Such commitments involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the consolidated balance sheets.
The Company’s exposure to credit loss is represented by the contractual amount of these commitments. The
Company follows the same credit policies in making commitments as it does for on-balance sheet
instruments.
At December 31, 2017 and 2016, the following financial instruments were outstanding whose contract
amounts represent credit risk:
Commitments to Extend Credit
Standby Letters of Credit
Contract Amount
2017
2016
$ 96,374,000
1,536,000
$ 71,359,000
1,551,000
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. The commitments for equity lines of credit may
expire without being drawn upon. Therefore, the total commitment amounts do not necessarily represent
future cash requirements. The amount of collateral obtained, if it is deemed necessary by the Company, is
based on management’s credit evaluation of the customer.
Unfunded commitments under commercial lines of credit, revolving credit lines and overdraft protection
agreements are commitments for possible future extensions of credit to existing customers. These lines of
credit are uncollateralized and usually do not contain a specified maturity date and may not be drawn upon to
the total extent to which the Company is committed.
Standby and performance letters of credit are conditional lending commitments issued by the Company to
guarantee the performance of a customer to a third party. Those letters of credit are primarily issued to
support public and private borrowing arrangements. Essentially all letters of credit issued have expiration
dates within one year. The credit risk involved in issuing letters of credit is essentially the same as that
involved in extending loan facilities to customers.
47
(15) Commitments and Contingencies (Continued)
Legal Contingencies. In the ordinary course of business, there are various legal proceedings pending against
Colony and its subsidiary. The aggregate liabilities, if any, arising from such proceedings would not, in the
opinion of management, have a material adverse effect on Colony’s consolidated financial position.
(16) Deferred Compensation Plan
Colony Bank, the wholly-owned subsidiary, has deferred compensation plans covering certain former
directors and certain officers choosing to participate through individual deferred compensation contracts. In
accordance with terms of the contracts, the Bank is committed to pay the participant’s deferred compensation
In the event of a participant’s death before age 65,
over a specified number of years, beginning at age 65.
payments are made to the participant’s named beneficiary over a specified number of years, beginning on the
first day of the month following the death of the participant.
Liabilities accrued under the plans totaled $766,667 and $825,599 as of December 31, 2017 and 2016,
respectively. Benefit payments under the contracts were $110,080 in 2017 and $135,885 in 2016.
Provisions charged to operations totaled $55,572 in 2017, $57,125 in 2016 and $196,869 in 2015.
The Company has purchased life insurance policies on the plans’ participants and uses the cash flow from
these policies to partially fund the plan. Fee income recognized with these plans totaled $233,064 in 2017,
$165,128 in 2016 and $174,675 in 2015. In addition death benefits recognized as income totaled $137,058 in
2015.
(17) Supplemental Cash Flow Information
Cash payments for the following were made during the years ended December 31:
Interest Expense
Income Taxes
2017
2016
2015
$ 6,851,541
$ 6,529,615
$ 6,536,994
$ 4,000,000
$ 3,365,000
$ 4,738,000
Noncash financing and investing activities for the years ended December 31 are as follows:
Acquisitions of Real Estate
Through Loan Foreclosures
2017
2016
2015
$ 1,724,936
$ 5,664,554
$ 7,536,165
Change in Unrealized Gain (Loss) on AFS Investment
Securities
$ (608,355)
$ (890,590)
$ 622,155
48
(18) Related Party Transactions
The following table reflects the activity and aggregate balance of direct and indirect loans to directors,
executive officers or principal holders of equity securities of the Company. All such loans were made on
substantially the same terms, including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and do not involve more than a normal risk of collectibility. A
summary of activity of related party loans is shown below:
Balance, Beginning
New Loans
Repayments
Transactions Due to Changes in Directors
Balance, Ending
2017
2016
$1,025,543
$ 1,816,609
1,050,393
(1,106,606)
(224,693)
2,379,026
(3,170,092)
-
$ 744,637
$ 1,025,543
(19) Fair Value of Financial Instruments and Fair Value Measurements
Generally accepted accounting standards in the U.S. require disclosure of fair value information about
financial instruments, whether or not recognized on the face of the balance sheet, for which it is practicable
to estimate that value. The assumptions used in the estimation of the fair value of Colony Bankcorp, Inc. and
Subsidiary’s financial instruments are detailed hereafter. Where quoted prices are not available, fair values
are based on estimates using discounted cash flows and other valuation techniques. The use of discounted
cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of
future cash flows.
Generally accepted accounting principles related to Fair Value Measurements define fair value, establish a
framework for measuring fair value, establish a three-level valuation hierarchy for disclosure of fair value
measurement and enhance disclosure requirements for fair value measurements. The valuation hierarchy is
based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.
The three levels are defined as follows:
•
•
•
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets
or liabilities in active markets.
Level 2 inputs to the valuation methodology include quoted prices for similar assets and
liabilities in active markets, and inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument.
Level 3 inputs to the valuation methodology are unobservable and represent the Company’s
own assumptions about the assumptions that market participants would use in pricing the
assets or liabilities.
The following disclosures should not be considered a surrogate of the liquidation value of the Company, but
rather a good-faith estimate of the increase or decrease in value of financial instruments held by the
Company since purchase, origination or issuance.
49
(19) Fair Value of Financial Instruments and Fair Value Measurements (Continued)
Cash and Short-Term Investments - For cash, due from banks, bank-owned deposits and federal funds
sold, the carrying amount is a reasonable estimate of fair value and is classified Level 1.
Investment Securities - Fair values for investment securities are based on quoted market prices where
available and classified as Level 1.
If quoted market prices are not available, estimated fair values are
based on quoted market prices of comparable instruments and classified as Level 2. If a comparable is not
available, the investment securities are classified as Level 3.
Federal Home Loan Bank Stock - The fair value of Federal Home Loan Bank stock approximates
carrying value and is classified as Level 1.
Loans - The fair value of fixed rate loans is estimated by discounting the future cash flows using the
current rates at which similar loans would be made to borrowers with similar credit ratings. For variable
rate loans, the carrying amount is a reasonable estimate of fair value. Most loans are classified as Level 2,
but impaired loans with a related allowance are classified as Level 3.
Bank-Owned Life Insurance - The carrying value of bank-owned life insurance policies approximates
fair value and is classified as Level 1.
Deposit Liabilities - The fair value of demand deposits, savings accounts and certain money market
deposits is the amount payable on demand at the reporting date and is classified as Level 1. The fair value
of fixed maturity certificates of deposit is estimated by discounting the future cash flows using the rates
currently offered for deposits of similar remaining maturities and is classified as Level 2.
Subordinated Debentures – The fair value of subordinated debentures is estimated by discounting the
future cash flows using the current rates at which similar advances would be obtained. Subordinated
debentures are classified as Level 2.
Other Borrowed Money - The fair value of other borrowed money is calculated by discounting
contractual cash flows using an estimated interest rate based on current rates available to the Company for
debt of similar remaining maturities and collateral terms. Other borrowed money is classified as Level 2
due to their expected maturities.
50
(19) Fair Value of Financial Instruments and Fair Value Measurements (Continued)
The carrying amount and estimated fair values of the Company’s financial instruments as of December 31
are as follows:
2017
Assets
Cash and Short-Term Investments
Investment Securities Available for Sale
Federal Home Loan Bank Stock
Loans, Net
Bank-Owned Life Insurance
Liabilities
Deposits
Subordinated Debentures
Other Borrowed Money
2016
Assets
Cash and Short-Term Investments
Investment Securities Available for Sale
Federal Home Loan Bank Stock
Loans, Net
Bank-Owned Life Insurance
Liabilities
Deposits
Subordinated Debentures
Other Borrowed Money
Carrying
Amount
Estimated
Fair Value
1
Level
2
3
(in Thousands)
$ 57,813
354,247
3,043
757,281
17,089
$ 57,813
354,247
3,043
757,163
17,089
$ 57,813
-
3,043
-
17,089
$
-
346,950
-
752,287
-
$
-
7,297
-
4,876
-
1,067,985
24,229
47,500
1,068,392
24,229
47,626
727,818
-
-
340,574
24,229
47,626
-
-
-
$ 75,167
323,658
3,010
744,999
15,419
$ 75,167
323,658
3,010
745,240
15,419
$ 75,167
-
3,010
-
15,419
$
-
323,082
-
738,288
-
$
-
576
-
6,952
-
1,044,357
24,229
46,000
1,045,726
24,229
46,232
677,129
-
-
368,597
24,229
46,232
-
-
-
Fair value estimates are made at a specific point in time, based on relevant market information and
information about the financial instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company’s entire holdings of a particular financial
instrument. Because no market exists for a significant portion of the Company’s financial instruments, fair
value estimates are based on many judgments. These estimates are subjective in nature and involve
uncertainties and matters of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet financial instruments without attempting
to estimate the value of anticipated future business and the value of assets and liabilities that are not
Significant assets and liabilities that are not considered financial
considered financial
instruments include deferred income taxes and premises and equipment.
In addition, the tax ramifications
related to the realization of the unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in the estimates.
instruments.
51
(19) Fair Value of Financial Instruments and Fair Value Measurements (Continued)
Following is a description of the valuation methodologies used for instruments measured at fair value on a
recurring and nonrecurring basis, as well as the general classification of such instruments pursuant to the
valuation hierarchy:
Assets
Securities - Where quoted prices are available in an active market, securities are classified within Level 1 of
the valuation hierarchy. Level 1 inputs include securities that have quoted prices in active markets for
identical assets. If quoted market prices are not available, then fair values are estimated by using pricing
models, quoted prices of securities with similar characteristics, or discounted cash flow. Examples of such
instruments, which would generally be classified within level 2 of the valuation hierarchy, include certain
collateralized mortgage and debt obligations and certain high-yield debt securities.
In certain cases where
there is limited activity or less transparency around inputs to the valuation, securities are classified within
level 3 of the valuation hierarchy. When measuring fair value, the valuation techniques available under the
market approach, income approach and/or cost approach are used. The Company’s evaluations are based on
market data and the Company employs combinations of these approaches for its valuation methods
depending on the asset class.
Impaired Loans - Impaired loans are those loans which the Company has measured impairment generally
based on the fair value of the loan’s collateral. Fair value is generally determined based upon independent
third-party appraisals of the properties, or discounted cash flows based upon the expected proceeds. These
assets are included as level 3 fair values, based upon the lowest level of input that is significant to the fair
value measurements.
Other Real Estate - Other real estate owned assets are adjusted to fair value less estimated selling costs upon
transfer of the loans to other real estate owned. Typically, an external, third-party appraisal is performed on
the collateral upon transfer into the other real estate owned account to determine the asset’s fair value.
Subsequent adjustments to the collateral’s value may be based upon either updated third-party appraisals or
management’s knowledge of the collateral and the current real estate market conditions. Appraised amounts
used in determining the asset’s fair value, whether internally or externally prepared, are discounted 10
percent to account for selling and marketing costs. Adjustments are routinely made in the appraisal process
by the appraisers to adjust for differences between the comparable sales and income data available. Such
adjustments are typically significant and result in a level 3 classification of the inputs for determining fair
value. Because of the high degree of judgment required in estimating the fair value of other real estate
owned assets and because of the relationship between fair value and general economic conditions, we
consider the fair value of other real estate owned assets to be highly sensitive to changes in market
conditions.
Assets and Liabilities Measured at Fair Value on a Recurring and Nonrecurring Basis - The following table
presents the recorded amount of the Company’s assets measured at fair value on a recurring and nonrecurring
basis as of December 31, 2017 and 2016, aggregated by the level in the fair value hierarchy within which
those measurements fall. The table below includes only impaired loans with a specific reserve and only other
real estate properties with a valuation allowance at December 31, 2017 and 2016. Those impaired loans and
other real estate properties are shown net of the related specific reserves and valuation allowances.
52
(19) Fair Value of Financial Instruments and Fair Value Measurements (Continued)
Assets (Continued)
2017
Total Fair
Value
Fair Value Measurements at Reporting Date Using
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Recurring
Securities Available for Sale
U.S. Government Agencies
Mortgage-Backed
State, County and Municipal
Corporate
Asset-Backed
Nonrecurring
Impaired Loans
Other Real Estate
2016
Recurring
Securities Available for Sale
U.S. Government Agencies
Mortgage-Backed
State, County and Municipal
Nonrecurring
Impaired Loans
Other Real Estate
Liabilities
$346,723,419
4,492,826
2,060,000
970,659
$354,246,904
$ 4,875,918
$ 2,014,904
$319,097,374
4,560,496
$323,657,870
$ 6,952,343
$ 2,505,188
$
$
$
$
$
$
$
$
-
-
-
-
-
-
-
-
-
-
-
-
$341,701,288
4,277,460
-
970,659
$ 5,022,131
215,366
2,060,000
-
$346,949,407
$ 7,297,497
$
$
-
-
$ 4,875,918
$ 2,014,904
$319,097,374
3,984,112
$
-
576,384
$323,081,486
$ 576,384
$
$
-
-
$ 6,952,343
$ 2,505,188
The Company did not identify any liabilities that are required to be presented at fair value.
53
(19) Fair Value of Financial Instruments and Fair Value Measurements (Continued)
Fair Value Measurements Using Significant Unobservable Inputs (Level 3)
The following tables present quantitative information about the significant unobservable inputs used in the
fair value measurements for assets in level 3 of the fair value hierarchy measured on a nonrecurring basis at
December 31, 2017 and 2016. These tables are comprised primarily of collateral dependent impaired loans
and other real estate owned:
December 31,
2017
Valuation
Techniques
Unobservable
Inputs
Range
Weighted Avg
Real Estate
Commercial Construction
$427,433
Sales Comparison
Residential Real Estate
81,736
Sales Comparison
Adjustment for Differences
Between the Comparable Sales
(16.00)% - 1,975.00%
979.50%
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
0.00% - 10.00%
5.00%
Adjustment for Differences
Between the Comparable Sales
(43.30)% - 83.30%
20.00%
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
0.00% - 25.00%
12.50%
Commercial Real Estate
4,016,742
Income Approach Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
0.00% - 10.00%
5.00%
Farmland
350,007
Sales Comparison
Other Real Estate Owned
2,014,904
Sales Comparison
Capitalization Rate
10.75%
Adjustment for Differences
Between the Comparable Sales
(71.00)% - 88.70%
8.85%
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
10.00% - 75.00%
42.50%
Adjustment for Differences
Between the Comparable Sales
(22.74)% - 15.00%
(3.87)%
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
5.44% - 87.24%
24.44%
Income Approach
Capitalization Rate
10.00%
54
(19) Fair Value of Financial Instruments and Fair Value Measurements (Continued)
Fair Value Measurements using Significant Unobservable Inputs (Level 3) (Continued)
December 31,
2016
Valuation
Techniques
Unobservable
Inputs
Range
Weighted Avg
Real Estate
Commercial Construction
$ 51,161
Sales Comparison
Adjustment for Differences
Between the Comparable Sales
(5.00)% - 99.00%
47.00%
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
0.00% - 10.00%
5.00%
Residential Real Estate
1,105,312
Sales Comparison
Adjustment for Differences
Between the Comparable Sales
(22.00)% - 0.00%
(11.00)%
Commercial Real Estate
5,445,192
Sales Comparison
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
0.00% - 40.00%
20.00%
Adjustment for Differences
Between the Comparable Sales
(14.08)% - 24.62%
5.27%
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
0.00% - 100.00%
50.00%
Income Approach
Capitalization Rate
10.67%
Farmland
350,678
Sales Comparison
Other Real Estate Owned
2,505,188
Sales Comparison
Adjustment for Differences
Between the Comparable Sales
(27.00)% - 15.00%
(6.00)%
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
10.00% - 75.00%
42.50%
Adjustment for Differences
Between the Comparable Sales
(50.80)% - 316.00%
132.60%
Management Adjustments for Age
of Appraisals and/or Current
Market Conditions
6.25% - 76.92%
36.31%
Income Approach
Discount Rate
12.50%
55
(19) Fair Value of Financial Instruments and Fair Value Measurements (Continued)
Fair Value Measurements Using Significant Unobservable Inputs (Level 3) (Continued)
The following table presents a reconciliation and statement of income classification of gains and losses for
all assets measured at fair value on a recurring basis using significant unobservable inputs (level 3) for the
years ended December 31, 2017, 2016 and 2015:
Available for Sale Securities
2016
2017
2015
Balance, Beginning
$ 576,384
$ 930,311
$ 948,390
Transfers into Level 3
Transfers out of Level 3
Securities Purchased During the Year
Securities Matured During the Year
Loss on OTTI Impairment Included
in Noninterest Income
Unrealized Gains(Losses) Included in Other
Comprehensive Income
7,069,649
(360,000)
(330,000)
-
-
-
-
-
11,464
(23,927)
(18,079)
Balance, Ending
$ 7,297,497
$ 576,384
$ 930,311
The Company’s policy is to recognize transfers in and transfers out of levels 1, 2 and 3 as of the end of a
reporting period. There were no transfers of securities between level 1 and level 2 or level 3 for the years
ended December 31, 2017, 2016 or 2015.
The following table presents quantitative information about recurring level 3 fair value measurements as of
December 31, 2017 and 2016:
December 31, 2017
Fair Value
Valuation Techniques
Unobservable
Inputs
Range
(Weighted Avg)
State, County and Municipal
$ 215,366
Discounted Cash Flow Discount Rate
N/A*
or Yield
U. S. Government Agencies
5,022,131
Fundamental Analysis Discount Rate
N/A*
Mortgage - Backed
Corporate
2,060,000
Option Pricing
or Yield
Discount Rate
or Yield
N/A*
December 31, 2016
State, County and Municipal
$ 576,384
Discounted Cash Flow Discount Rate
N/A*
or Yield
* The Company relies on a third-party pricing service to value its securities. The details of the unobservable inputs and other adjustments used
by the third-party pricing service were not readily available to the Company.
56
(20) Regulatory Capital Matters
The amount of dividends payable to the parent company from the subsidiary bank is limited by various
banking regulatory agencies. Upon approval by regulatory authorities, the Bank may pay cash dividends to
the parent company in excess of regulatory limitations.
The Company is subject to various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain mandatory and, possibly,
additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the
Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Company must meet specific capital guidelines that involve
quantitative measures of the Company’s assets, liabilities and certain off-balance sheet items as calculated
under regulatory accounting practices. The Company’s capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy require the Company to maintain
minimum amounts and ratios of total and Tier I capital to risk-weighted assets, and of Tier I capital to
average assets. As of December 31, 2017, the interim final Basel III rules (Basel III) require the Company to
also maintain minimum amounts and ratios of common equity Tier 1 capital to risk weighted assets. These
amounts and ratios as defined in regulations are presented hereafter. Management believes, as of December
31, 2017, the Company meets all capital adequacy requirements to which it is subject under the regulatory
framework for prompt corrective action.
In the opinion of management, there are no conditions or events
since prior notification of capital adequacy from the regulators that have changed the institution’s category.
The Basel III rules also require the implementation of a new capital conservation buffer comprised of
common equity Tier 1 capital. The capital conservation buffer was phased in beginning January 1, 2016 at
0.625% of risk-weighted assets, with subsequent increases of 0.625% each year until reaching its final level
of 2.5% on January 1, 2019.
The following table summarizes regulatory capital information as of December 31, 2017 and December 31,
2016 on a consolidated basis and for the subsidiary, as defined. Regulatory capital ratios for December 31,
2017 and 2016 were calculated in accordance with the Basel III rules.
57
(20) Regulatory Capital Matters (Continued)
The following table summarizes regulatory capital information as of December 31, 2017 and 2016 on a
consolidated basis and for its wholly-owned subsidiary, as defined:
Actual
Amount
Ratio
For Capital
Adequacy Purposes
Ratio
Amount
(In Thousands)
To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
Ratio
Amount
$127,786
127,470
15.56% $65,718
65,628
15.54
8.00%
8.00
N/A
$82,036
N/A
10.00%
120,279
119,963
14.64
14.62
49,289
49,221
96,779
119,963
11.78
14.62
36,967
36,916
6.00
6.00
4.50
4.50
N/A
65,628
N/A
53,323
120,279
119,963
9.89
9.88
48,635
48,566
4.00
4.00
N/A
60,708
N/A
8.00
N/A
6.50
N/A
5.00
$130,785
127,646
16.64% $ 62,880
62,796
16.26
8.00%
8.00
N/A
$78,495
N/A
10.00%
121,862
118,723
15.50
15.12
47,160
47,097
89,002
118,723
11.32
15.12
35,370
35,323
6.00
6.00
4.50
4.50
N/A
62,796
N/A
51,022
121,862
118,723
10.29
10.04
47,368
47,290
4.00
4.00
N/A
59,113
N/A
8.00
N/A
6.50
N/A
5.00
Total Capital
to Risk-Weighted Assets
Consolidated
Colony Bank
Tier I Capital
to Risk-Weighted Assets
Consolidated
Colony Bank
Common Equity Tier 1 Capital
to Risk-Weighted Assets
Consolidated
Colony Bank
Tier I Capital
to Average Assets
Consolidated
Colony Bank
Total Capital
to Risk-Weighted Assets
Consolidated
Colony Bank
Tier I Capital
to Risk-Weighted Assets
Consolidated
Colony Bank
Common Equity Tier 1 Capital
to Risk-Weighted Assets
Consolidated
Colony Bank
Tier I Capital
to Average Assets
Consolidated
Colony Bank
58
(20) Regulatory Capital Matters (Continued)
In 2017, the Bank obtained approval of its regulators and paid a $8,725,000 dividend to the Company. The
dividend was utilized to redeem 9,360 shares of Preferred Stock. In 2016, the Bank obtained approval of its
regulators and paid a $9,100,000 dividend to the Company. The dividend was utilized to redeem 8,661
shares of Preferred Stock. In 2015, the Bank obtained approval of its regulators and paid a $10,000,000
dividend to the Company. The dividend was utilized to redeem 9,979 shares of Preferred Stock.
59
(21) Financial Information of Colony Bankcorp, Inc. (Parent Only)
The parent company’s balance sheets as of December 31, 2017 and 2016 and the related statements of
operations and comprehensive income (loss) and cash flows for each of the years in the three-year period
then ended are as follows:
COLONY BANKCORP, INC. (PARENT ONLY)
BALANCE SHEETS
DECEMBER 31
ASSETS
Cash
Premises and Equipment, Net
Investment in Subsidiary, at Equity
Other
Total Assets
2017
2016
$ 910,239
1,099,626
114,235,955
24,458
$ 2,307,008
1,074,884
114,478,277
20,990
$116,270,278
$117,881,159
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities
Other Borrowed Money
Dividends Payable
Other
Subordinated Debt
Stockholders’ Equity
Preferred Stock, Stated Value $1,000; 10,000,000 Shares
Authorized, 0 and 9,360 Shares Issued and Outstanding
as of December 31, 2017 and 2016
Common Stock, Par Value $1; 20,000,000 Shares Authorized,
8,439,258 Shares Issued and Outstanding as of
December 31, 2017 and 2016
Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
$ 1,500,000
$
-
218,615
-
105,300
159,126
$ 1,718,615
$
264,426
24,229,000
24,229,000
-
9,360,000
8,439,258
29,145,094
59,230,260
(6,491,949)
8,439,258
29,145,094
51,465,521
(5,022,140)
90,322,663
93,387,733
Total Liabilities and Stockholders’ Equity
$116,270,278
$117,881,159
60
(21) Financial Information of Colony Bankcorp, Inc. (Parent Only) (Continued)
COLONY BANKCORP, INC. (PARENT ONLY)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31
Income
Dividends from Subsidiary
Management Fees
Other
Expenses
Interest
Salaries and Employee Benefits
Other
2017
2016
2015
$ 8,746,882
601,080
97,103
$ 9,118,104
601,080
103,612
$10,015,147
581,334
112,876
$9,445,065
$ 9,822,796
$10,709,357
900,113
917,259
604,166
601,567
840,130
554,434
503,286
811,150
666,872
2,421,538
1,996,131
1,981,308
Income Before Taxes and Equity in
Undistributed Earnings of Subsidiary
7,023,527
7,826,665
8,728,049
Income Tax Benefits
568,258
457,934
444,764
Income Before Equity in
Undistributed Earnings of Subsidiary
7,591,785
8,284,599
9,172,813
Dividends Received in Excess of
Earnings of Subsidiary
-
-
(800,116)
Equity in Undistributed
Earnings of Subsidiary
Net Income
Preferred Stock Dividends
Net Income Available
to Common Stockholders
159,193
388,611
-
7,750,978
210,600
8,673,210
1,493,310
8,372,697
2,375,010
$ 7,540,378
$ 7,179,900
$ 5,997,687
61
(21) Financial Information of Colony Bankcorp, Inc. (Parent Only) (Continued)
COLONY BANKCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31
2017
2016
2015
Net Income
$7,750,978
$8,673,210
$8,372,697
Other Comprehensive Income (Loss)
Gains (Losses) on Securities Arising During the Year
Tax Effect
Realized (Gains) Losses on Sale of AFS Securities
Tax Effect
Change in Unrealized Gains (Losses) on Securities
Available for Sale, Net of Reclassification
Adjustment and Tax Effects
(608,355)
206,841
-
-
(505,367)
171,825
(385,223)
130,976
610,689
(207,634)
11,466
(3,898)
(401,514)
(587,789)
410,623
Comprehensive Income
$7,349,464
$8,085,421
$8,783,320
62
(21) Financial Information of Colony Bankcorp, Inc. (Parent Only) (Continued)
COLONY BANKCORP, INC. (PARENT ONLY)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
Cash Flows from Operating Activities
Net Income
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Depreciation and Amortization
Equity in Undistributed
Earnings of Subsidiary
Dividends Received in Excess of
Earnings of Subsidiary
Change in Interest Payable
Other
Cash Flows from Investing Activities
Purchases of Premises and Equipment
Cash Flows from Financing Activities
Proceeds from Other Borrowed Money
Principal Payments on Other Borrowed
Dividends Paid on Common Stock
Dividends Paid on Preferred Stock
Redemption of Preferred Stock
2017
2016
2015
$ 7,750,978
$ 8,673,210
$ 8,372,697
70,183
66,476
73,999
(159,193)
(388,611)
-
-
17,887
38,135
-
5,367
108,288
800,116
23,072
1,555,482
7,717,990
8,464,730
10,825,366
(94,925)
(6,836)
(8,884)
5,000,000
(3,500,000)
(843,934)
(315,900)
(9,360,000)
-
-
-
(1,590,746)
(8,661,000)
-
-
-
(2,487,274)
(9,979,000)
(9,019,834)
(10,251,746)
(12,466,274)
Increase (Decrease) in Cash
(1,396,769)
(1,793,852)
(1,649,792)
Cash, Beginning
2,307,008
4,100,860
5,750,652
Cash, Ending
$ 910,239
$ 2,307,008
$ 4,100,860
63
(22) Earnings Per Share
Basic earnings per share is computed by dividing net income available to common stockholders by the
weighted average number of common shares outstanding during each period. Diluted earnings per share
reflects the potential dilution of common stock warrants. Net income available to common stockholders
represents net income after preferred stock dividends. The following table presents earnings per share for the
years ended December 31, 2017, 2016 and 2015:
Numerator
Net Income Available to Common Stockholders
Denominator
Weighted Average Number of Common Shares
2017
2016
2015
$ 7,540,378
$ 7,179,900
$ 5,997,687
Outstanding for Basic Earnings Per Common Share
8,439,258
8,439,258
8,439,258
Dilutive Effect of Potential Common Stock
Stock Warrants
Weighted-Average Number of Shares Outstanding for
194,323
74,037
19,203
Diluted Earnings Per Common Share
8,633,581
8,513,295
8,458,461
Earnings Per Share - Basic
$ 0.89
$ 0.85
$ 0.71
Earnings Per Share - Diluted
$ 0.87
$ 0.84
$ 0.71
(23) Accumulated Other Comprehensive Income (Loss)
Changes in accumulated other comprehensive income (loss) for unrealized gains and losses securities
available for sale for the years ended December 31, 2017, 2016 and 2015 are as follows:
2017
2016
2015
Beginning Balance
$
(5,022,140)
$
(4,434,351)
$
(4,844,974)
Other Comprehensive Income
Before Reclassification
Amounts Reclassified from Accumulated
Other Comprehensive Income
TCJ Act
(401,514)
(333,542)
403,055
-
(1,068,295)
(254,247)
-
(587,789)
7,568
-
410,623
Net Current Period Other Comprehensive Income
(1,469,809)
Ending Balance
$
(6,491,949)
$
(5,022,140)
$
(4,434,351)
64
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements and Factors that Could Affect Future Results
Certain statements contained in this Annual Report that are not statements of historical fact constitute
forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 (the
Act), notwithstanding that such statements are not specifically identified. In addition, certain statements may
be contained in the Company’s future filings with the SEC, in press releases, and in oral and written
statements made by or with the approval of the Company that are not statements of historical fact and
constitute forward-looking statements within the meaning of the Act. Examples of forward-looking
statements include, but are not limited to: (i) projections of revenues, income or loss, earnings or loss per
share, the payment or nonpayment of dividends, capital structure and other financial items; (ii) statements of
plans and objectives of Colony Bankcorp, Inc. or its management or Board of Directors, including those
relating to products or services; (iii) statements of future economic performance; and (iv) statements of
assumptions underlying such statements. Words such as “believes,” “anticipates,” “expects,” “intends,”
“targeted” and similar expressions are intended to identify forward-looking statements but are not the
exclusive means of identifying such statements.
Forward-looking statements involve risks and uncertainties that may cause actual results to differ materially
from those in such statements. Factors that could cause actual results to differ from those discussed in the
forward-looking statements include, but are not limited to:
• Local and regional economic conditions and the impact they may have on the Company and its
customers and the Company’s assessment of that impact;
• Changes in estimates of future reserve requirements based upon the periodic review thereof under
relevant regulatory and accounting requirements;
• The effects of and changes in trade, monetary and fiscal policies and laws, including interest rate
policies of the Federal Reserve Board;
•
Inflation, interest rate, market and monetary fluctuations;
• Political instability;
• Acts of war or terrorism;
• The timely development and acceptance of new products and services and perceived overall value of
these products and services by users;
• Changes in consumer spending, borrowings and savings habits;
• Technological changes;
• Acquisitions and integration of acquired businesses;
• The ability to increase market share and control expenses;
65
• The effect of changes in laws and regulations (including laws and regulations concerning taxes,
banking, securities and insurance) with which the Company and its subsidiaries must comply;
• The effect of changes in accounting policies and practices, as may be adopted by the regulatory
agencies, as well as the Financial Accounting Standards Board and other accounting standard setters;
• Changes in the Company’s organization, compensation and benefit plans;
• The costs and effects of litigation and of unexpected or adverse outcomes in such litigation;
• Greater than expected costs or difficulties related to the integration of new lines of business; and
• The Company’s success at managing the risks involved in the foregoing items.
Forward-looking statements speak only as of the date on which such statements are made. The Company
undertakes no obligation to update any forward-looking statement to reflect events or circumstances after the
date on which such statement is made, or to reflect the occurrence of unanticipated events.
Future Outlook
During the recent financial crisis, the financial industry experienced tremendous adversities as a result of the
collapse of the real estate markets across the country. Colony, like most banking companies, has been
affected by these economic challenges that started with a rapid stall of real estate sales and developments
throughout the country. While much has been accomplished in addressing problem assets the past several
years, there is still work to be done in bringing our problem assets to an acceptable level. A focus in 2018
will be directed toward further reduction of problem assets.
As we look forward to 2018 we are committed to improving earnings and reducing problem assets. Given
the improved condition of the company we are also considering product and market expansion. In January
2017, the Company opened its third office in Savannah. Currently, the Company is performing due diligence
on a property for a new office in Statesboro.
While the Company has improved earnings, reduced problem assets and maintained strong capital levels, we
have reinstated dividend payments beginning first quarter 2017. The Company’s board of directors
suspended the payment of dividends in the third quarter of 2009.
We continue to explore opportunities to improve core non-interest income. Revenue enhancement initiatives
to accomplish this include new product lines and services. The Company will also invest in new technology
with implementation of a new loan platform which will offer much efficiency with our “back-office”
operations.
In addition, we continue to make efforts to attract and retain top talent to improve business operations. To
that end, the Company entered into Retention Agreements with members of management in the first quarter
of 2015. The Company expects that these agreements will facilitate the retention of key individuals
responsible for maintaining current operations and spearheading future product and market expansion.
66
Tax Cuts and Jobs Act
On December 22, 2017, the Tax Cuts and Jobs Act (the “TCJ Act”) was enacted. The TCJ Act made broad
changes to the U.S. tax code, including, but not limited to, a reduction of the U.S. federal corporate tax rate
to 21 percent. As a result of the enactment of the TCJ Act, we have remeasured our deferred tax assets and
liabilities based upon the new U.S. statutory federal income tax rate of 21%, which is the tax rate at which
these assets and liabilities are expected to reverse in the future. We recognized additional income tax
expense of $2,040,946 in the fourth quarter of 2017 related to the remeasurement of our deferred tax assets
and liabilities. Currently, we are still analyzing certain aspects of the new law and refining our calculations,
which could affect the measurement of these assets and liabilities or give rise to new deferred tax amounts.
The table below illustrates the effect the additional tax expense resulting from the TCJ Act had on our results
of operations for the year ended December 31, 2017.
Net Income
Earnings Per Share
Return on Average Assets (1)
Return on Average Equity (1)
2017 As
Reported
$ 7,751
$ 0.89
0.63%
8.28%
TCJ Act
Impact
$ (2,041)
$ (0.27)
(0.19)
(2.24)
2017
Adjusted
(Non-GAAP)
$ 9,792
$ 1.16
0.80%
10.52%
(1) Computed using Net Income Available to Common Stockholders.
Non-GAAP Financial Measures
Our accounting and reporting policies conform to generally accepted accounting principles (GAAP) in the
United States and prevailing practices in the banking industry. However, certain non-GAAP measures are
used by management to supplement the evaluation of our performance. These include the fully-taxable
equivalent measures: tax-equivalent net interest income, tax-equivalent net interest margin and tax-
equivalent net interest spread, which include the effects of taxable-equivalent adjustments using a federal
income tax rate of 34% to increase tax-exempt interest income to a tax-equivalent basis. Tax-equivalent
adjustments are reported in Notes 1 and 2 to the Average Balances with Average Yields and Rates table
under Rate/Volume Analysis. Tangible book value per common share is also a non-GAAP measure used in
the selected Financial Data Section.
Tax-equivalent net interest income, net interest margin and net interest spread. Net interest income on a tax-
equivalent basis is a non-GAAP measure that adjusts for the tax-favored status of net interest income from
loans and investments. We believe this measure to be the preferred industry measurement of net interest
income and it enhances comparability of net interest income arising from taxable and tax-exempt sources.
The most directly comparable financial measure calculated in accordance with GAAP is our net interest
income. Net interest margin on a tax-equivalent basis is net interest income on a tax-equivalent basis divided
by average interest-earning assets on a tax-equivalent basis. The most directly comparable financial measure
calculated in accordance with GAAP is our net interest margin. Net interest spread on a tax-equivalent basis
is the difference in the average yield on average interest-earning assets on a tax equivalent basis and the
average rate paid on average interest-bearing liabilities. The most directly comparable financial measure
calculated in accordance with GAAP is our net interest spread.
67
Non-GAAP Financial Measures (Continued)
These non-GAAP financial measures should not be considered alternatives to GAAP-basis financial
statements, and other bank holding companies may define or calculate these non-GAAP measures or similar
measures differently.
A reconciliation of these performance measures to GAAP performance measures is included in the tables
below.
Non-GAAP Performance Measures Reconciliation
2017
Years Ended December 31,
2014
2015
2016
(Dollars in Thousands, except per share data)
2013
Interest Income Reconciliation
Interest Income – Taxable Equivalent
Tax Equivalent Adjustment
Interest Income (GAAP)
Net Interest Income Reconciliation
Net Interest Income – Taxable Equivalent
Tax Equivalent Adjustment
Net Interest Income (GAAP)
Net Interest Margin Reconciliation
Net Interest Margin – Taxable Equivalent
Tax Equivalent Adjustment
Net Interest Margin (GAAP)
Interest Rate Spread Reconciliation
Interest Rate Spread – Taxable Equivalent
Tax Equivalent Adjustment
Interest Rate Spread (GAAP)
Selected Financial Data
Tangible Book Value Per Common Share
Effect of Other Intangible Assets
Book Value Per Common Share (GAAP)
$ 46,079
(163)
$ 45,916
$ 44,762
(173)
$ 44,589
$ 44,407
(132)
$ 44,275
$ 44,879
(117)
$ 44,762
$ 45,356
(170)
$ 45,186
$ 39,206
(163)
$ 39,043
$ 38,279
(173)
$ 38,106
$ 37,838
(132)
$ 37,706
$ 38,080
(117)
$ 37,963
$ 37,859
(170)
$ 37,689
3.46%
(0.02)
3.44%
3.34%
(0.02)
3.32%
3.51%
(.02)
3.49%
3.40%
(.02)
3.38%
3.52%
(.01)
3.51%
3.41%
(.01)
3.40%
3.60%
(.01)
3.59%
3.49%
(.01)
3.48%
3.61%
(.02)
3.59%
3.50%
(.02)
3.48%
$ 10.69
0.01
$ 10.70
$ 9.95
0.01
$ 9.96
$ 9.16
0.02
$ 9.18
$
$
8.40
0.02
8.42
$ 7.32
0.02
$ 7.34
68
The Company
Colony Bankcorp, Inc. (“Colony” or the “Company”) is a bank holding company headquartered in
Fitzgerald, Georgia that provides, through its wholly-owned subsidiary Colony Bank (collectively referred to
as the Company), a broad array of products and services throughout central, south and coastal Georgia
markets. The Company offers commercial, consumer and mortgage banking services.
Overview
The following discussion and analysis presents the more significant factors affecting the Company’s
financial condition as of December 31, 2017 and 2016, and results of operations for each of the years in the
three-year period ended December 31, 2017. This discussion and analysis should be read in conjunction with
the Company’s consolidated financial statements, notes thereto and other financial information appearing
elsewhere in this report.
Taxable-equivalent adjustments are the result of increasing income from tax-free loans and investments by
an amount equal to the taxes that would be paid if the income were fully taxable based on a 34 percent
federal tax rate, thus making tax-exempt yields comparable to taxable asset yields.
Dollar amounts in tables are stated in thousands, except for per share amounts.
69
Results of Operations
The Company’s results of operations are determined by its ability to effectively manage interest income and
expense, to minimize loan and investment losses, to generate noninterest income and to control noninterest
expense. Since market forces and economic conditions beyond the control of the Company determine
interest rates, the ability to generate net interest income is dependent upon the Company’s ability to obtain an
adequate spread between the rate earned on interest-earning assets and the rate paid on interest-bearing
liabilities. Thus, the key performance for net interest income is the interest margin or net yield, which is
taxable-equivalent net interest income divided by average interest-earning assets. Net income available to
common shareholders totaled $7.54 million, or $0.87 per diluted shares in 2017, compared to $7.18 million,
or $0.84 per diluted common share in 2016 and compared to $6.00 million, or $0.71 per diluted common
share in 2015.
Selected income statement data, returns on average assets and average equity and dividends per share for the
comparable periods were as follows:
2017
2016
Variance Variance
2016
2015
Variance Variance
$
%
$
%
Taxable-equivalent net interest income
$
39,206
$
38,279
$
927
2.42%
$
38,279
$
37,838
$
441
1.17%
Taxable-equivalent adjustment
163
173
(10)
(5.78)
173
132
41
31.06
Net interest income
Provision for loan losses
Noninterest income
Noninterest expense
39,043
390
9,735
33,860
38,106
1,062
9,553
34,073
937
2.46
(672)
(63.28)
182
1.91
(213)
(0.63)
38,106
1,062
9,553
34,073
37,706
866
9,045
33,724
400
196
508
349
1.06
22.63
5.62
1.03
Income before income taxes
$
14,528
$
12,524
$
2,004
16.00%
$
12,524
$
12,161
$
363
2.98%
Income Taxes
6,777
3,851
2,926
75.98
3,851
3,788
63
1.66
Net income
$
7,751
$
8,673
$
(922)
(10.63)%
$
8,673
$
8,373
$
300
3.58%
Preferred stock dividends
$
211
$
1,493
$
(1,282)
(85.87)%
$
1,493
$
2,375
$
(882)
(37.14)%
Net income available to
common shareholders
Net income available to
common shareholders:
Basic
Diluted
$
7,540
$
7,180
$
360
5.01%
$
7,180
$
5,998
$
1,182
19.71%
$ 0.89
$ 0.87
$ 0.85
$ 0.04
4.71% $ 0.85
$ 0.71
$ 0.84
$ 0.03
3.57% $ 0.84
$ 0.71
$ 0.14
$ 0.13
19.72%
18.31%
Return on average assets (1)
0.63% 0.62% 0.01% 1.61% 0.62% 0.52% 0.10% 19.23%
Return on average common equity (1) 8.28% 7.17% 1.11% 15.48% 7.17% 5.90% 1.27% 21.53%
(1) Computed using net income available to common shareholders.
70
Net Interest Income
Net interest income is the difference between interest income on earning assets, such as loans and securities,
and interest expense on liabilities, such as deposits and borrowings, which are used to fund those assets. Net
interest income is the Company’s largest source of revenue, representing 80.04 percent of total revenue
during 2017, 79.96 percent of total revenue during 2016, and 80.65 percent of total revenue during 2015.
Net interest margin is the taxable-equivalent net interest income as a percentage of average interest-earning
assets for the period. The level of interest rates and the volume and mix of interest-earning assets and
interest-bearing liabilities impact net interest income and net interest margin.
The Company’s loan portfolio is significantly affected by changes in the prime interest rate. The prime
interest rate, which is the rate offered on loans to borrowers with strong credit, is currently 4.50 percent. The
Federal Reserve Board sets general market rates of interest, including the deposit and loan rates offered by
many financial institutions. For the first time in several years, the prime interest rate increased by 25 basis
points in the fourth quarter of 2015, followed by a similar 25-point increase in the fourth quarter of 2016.
During 2017, the prime interest rate increased overall by 75 basis points. Given that the federal funds rate
moves in accordance with the movement of the prime interest rate, we anticipate that the federal funds rate
will also increase from its current 1.5 percent.
The following table presents the changes in taxable-equivalent net interest income and identifies the changes
due to differences in the average volume of interest-earning assets and interest-bearing liabilities and the
changes due to changes in the average interest rate on those assets and liabilities. The changes in net interest
income due to changes in both average volume and average interest rate have been allocated to the average
volume change or the average interest rate change in proportion to the absolute amounts of the change in
each. The Company’s consolidated average balance sheets along with an analysis of taxable-equivalent net
interest earnings are presented in the Rate/Volume Analysis.
71
Rate/Volume Analysis
The rate/volume analysis presented hereafter illustrates the change from year to year for each component of
the taxable equivalent net interest income separated into the amount generated through volume changes and
the amount generated by changes in the yields/rates.
Interest Income
Loans, Net-Taxable
Investment Securities
Taxable
Tax-Exempt
Total Investment Securities
Interest-Bearing Deposits in
Other Banks
Federal Funds Sold
Other Interest - Earning Assets
Total Interest Income
Interest Expense
Interest-Bearing Demand and
Savings Deposits
Time Deposits
Total Interest Expense
On Deposits
Other Interest-Bearing Liabilities
Subordinated Debentures
Other Debt
Federal Funds Purchased
Total Interest Expense
Net Interest Income (Loss)
Changes From
2016 to 2017 (a)
Changes From
2015 to 2016 (a)
Volume
Rate
Total
Volume
Rate
Total
$
72
$
(407)
$
(335)
$
221
$
(951)
$
(730)
769
(5)
764
(12)
-
12
836
174
(240)
(66)
770
(9)
761
120
-
7
481
28
15
43
-
231
4
169
667
$
126
54
(2)
221
260
$
$
1,539
(14)
1,525
108
-
19
1,317
202
(225)
(23)
126
285
2
390
927
381
12
393
(18)
(15)
4
585
137
(271)
(134)
-
74
-
(60)
645
$
669
(15)
654
62
-
5
(230)
62
(4)
58
98
(183)
1
(26)
(204)
$
$
1,050
(3)
1,047
44
(15)
9
355
199
(275)
(76)
98
(109)
1
(86)
441
(a) Changes in net interest income for the periods, based on either changes in average balances or changes
in average rates for interest-earning assets and interest-bearing liabilities, are shown on this table.
During each year there are numerous and simultaneous balance and rate changes; therefore, it is not
possible to precisely allocate the changes between balances and rates. For the purpose of this table,
changes that are not exclusively due to balance changes or rate changes have been attributed to rates.
72
The Company maintains about 22.6 percent of its loan portfolio in adjustable rate loans that reprice with
prime rate changes, while the bulk of its other loans mature within 3 years. The liabilities to fund assets are
primarily in non-maturing core deposits and short term certificates of deposit that mature within one year.
The Federal Reserve rates have remained flat since 2008 until the 25 basis point increase in the fourth quarter
of 2015 and 2016 followed by the 75 basis point increase during 2017. We have seen the net interest margin
change to 3.46 percent for 2017, compared to 3.51 percent for 2016 and 3.52 percent for 2015. We have
seen our net interest margin reach a low of 3.35 percent in first quarter of 2017 to a high of 3.50 percent in
the third and fourth quarters 2017.
Taxable-equivalent net interest income for 2017 increased by $927 thousand, or 2.42 percent, compared to
2016 while taxable-equivalent net interest income for 2016 increased by $441 thousand, or 1.17 percent
compared to 2015. The average volume of interest-earning assets during 2017 increased $42.73 million
compared to 2016 while over the same period the net interest margin dropped to 3.46 percent from 3.51
percent. The average volume of interest-earning assets during 2016 increased $16.41 million compared to
2015 while over the same period the net interest margin dropped to 3.51 percent from 3.52 percent. The
change in the net interest margin in 2017 was primarily driven by a higher level of low yielding assets offset
by an increase in the cost of funds. The change in the net interest margin in 2016 was primarily driven by
reduction in the cost of funds and a higher level of low yielding assets. The increase in average interest-
earning assets in 2017 was primarily in investments. The increase in average interest-earning assets in 2016
was in loans, investments and other interest-earning assets.
The average volume of loans increased $1.41 million in 2017 compared to 2016 and increased $4.20 million
in 2016 compared to 2015. The average yield on loans decreased 5 basis points in 2017 compared to 2016
and decreased 13 basis points in 2016 compared to 2015. The average volume of deposits increased $36.78
million in 2017 compared to 2016. The average volume of deposits increased $17.35 million in 2016
compared to 2015. Demand deposits made up $18.59 million of the increase in average deposits in 2017
compared to $11.80 million of the increase in average deposits in 2016.
Accordingly, the ratio of average interest-bearing deposits to total average deposits was 84.6 percent in 2017,
85.9 percent in 2016 and 86.8 percent in 2015. This deposit mix, combined with a general decrease in
interest rates, had the effect of (i) decreasing the average cost of total deposits by 2 basis points in 2017
compared to 2016 and decreasing the average cost of total deposits by 2 basis points in 2016 compared to
2015, and (ii) mitigating a portion of the impact of decreasing yields on interest-earning assets on the
Company’s net interest income.
The Company’s net interest spread, which represents the difference between the average rate earned on
interest-earning assets and the average rate paid on interest-bearing liabilities, was 3.34 percent in 2017
compared to 3.40 percent in 2016 and 3.41 percent in 2015. The net interest spread, as well as the net
interest margin, will be impacted by future changes in short-term and long-term interest rate levels, as well as
the impact from the competitive environment. A discussion of the effects of changing interest rates on net
interest income is set forth in Market Risk and Interest Rate Sensitivity included elsewhere in this report.
73
Rate/Volume Analysis (Continued)
AVERAGE BALANCE SHEETS
Assets
Interest-Earning Assets
Loans, Net of Unearned Income (1)
Investment Securities
Taxable
Tax-Exempt (2)
Total Investment Securities
Interest-Bearing Deposits
Federal Funds Sold
Other Interest-Earning Assets
Total Interest-Earning Assets
Noninterest-Earning Assets
Cash
Allowance for Loan Losses
Other Assets
Total Noninterest-Earning Assets
Average
Balances
2017
Income/
Expense
2016
2015
Yields/
Rates
Average
Balances
Income/
Yields/
Expense
Rates
Average
Balances
Income/ Yields/
Expense
Rates
$
762,554
$
38,749
5.08%
$
761,149
$
39,084
5.13%
$
756,953
$
39,814
5.26%
344,790
2,310
347,100
20,920
-
3,126
6,867
81
6,948
232
-
1.99
3.51
2.00
1.11
-
150
4.80
301,357
2,440
303,797
23,167
-
2,854
5,328
95
5,423
124
-
131
1,133,700
46,079
4.06%
1,090,967
44,762
1.77
3.89
1.79
0.54
-
4.59
4.10
276,807
2,171
278,978
29,815
6,056
2,754
4,278
98
4,376
80
15
122
1,074,556
44,407
1.55
4.51
1.57
0.27
0.25
4.43
4.13
20,587
(8,442)
54,786
66,931
19,208
(9,372)
63,060
72,896
19,049
(8,587)
61,966
72,428
Total Assets
$
1,200,631
$
1,163,863
$
1,146,984
Liabilities and Stockholders' Equity
Interest-Bearing Liabilities
Interest-Bearing Demand and Savings
$
517,974
$
1,896
0.37%
$
469,740
$
1,694
0.36%
$
430,731
$
1,495
0.35%
Other Time
Total Interest-Bearing Deposits
Other Interest-Bearing Liabilities
Other Borrowed Money
Subordinated Debentures
Federal Funds Purchased and
Repurchase Agreements
Total Other Interest-Bearing
Liabilities
Total Interest-Bearing Liabilities
Noninterest-Bearing Liabilities and
Stockholders' Equity
Demand Deposits
Other Liabilities
Stockholders' Equity
Total Noninterest-Bearing
Liabilities and Stockholders' Equity
Total Liabilities and
353,587
871,561
51,388
24,229
2,862
4,758
1,385
727
0.81
0.55
2.70
3.00
383,628
853,368
42,470
24,229
3,087
4,781
1,100
601
0.80
0.56
2.59
2.48
417,080
847,811
40,000
24,229
3,362
4,857
1,209
503
0.81
0.57
3.02
2.08
178
3
1.69
35
1
2.86
3
-
-
75,795
947,356
2,115
6,873
2.79
0.73
66,734
920,102
1,702
6,483
2.55
0.70
64,232
912,043
1,712
6,569
2.67
0.72
158,924
3,306
91,045
253,275
140,338
3,309
100,114
243,761
128,541
4,690
101,710
234,941
Stockholders' Equity
$
1,200,631
$
1,163,863
$
1,146,984
Interest Rate Spread
Net Interest Income
Net Interest Margin
$
39,206
3.34%
3.46%
$
38,279
3.40%
3.51%
$
37,838
3.41%
3.52%
(1) The average balance of loans includes the average balance of nonaccrual loans. Income on such loans is recognized and recorded on the
cash basis. Taxable equivalent adjustments totaling $135, $141 and $99 for 2017, 2016 and 2015, respectively, are included in interest on
loans. The adjustments are based on a federal tax rate of 34 percent.
(2) Taxable-equivalent adjustments totaling $28, $32 and $33 for 2017, 2016 and 2015, respectively, are included in tax-exempt interest on
investment securities. The adjustments are based on a federal tax rate of 34 percent with appropriate reductions for the effect of disallowed
interest expense incurred in carrying tax-exempt obligations.
74
Provision for Loan Losses
The provision for loan losses is determined by management as the amount to be added to the allowance for
loan losses after net charge-offs have been deducted to bring the allowance to a level which, in
management’s best estimate, is necessary to absorb probable losses within the existing loan portfolio. The
provision for loan losses totaled $390 thousand in 2017 compared to $1.06 million in 2016 and $866
thousand in 2015. See the section captioned “Allowance for Loan Losses” elsewhere in this discussion for
further analysis of the provision for loan losses.
Noninterest Income
The components of noninterest income were as follows:
2017
2016
Variance Variance
2016
2015
Variance
Variance
$
%
$
%
Service Charges on Deposit Accounts
$
4,467
$
4,307
$
160
3.71%
$
4,307
$
4,269
$
38
0.89%
Other Charges, Commissions and Fees
3,040
2,803
Mortgage Fee Income
Securities Gains (Losses)
859
-
682
385
237
177
8.46
25.95
(385)
(100.00)
2,803
2,627
682
385
527
(11)
176
155
396
6.70
29.41
3,600.00
Other
Total
1,369
1,377
(8)
(0.58)
1,377
1,633
(256)
(15.68)
$
9,735
$
9,554
$
181
1.89%
$
9,554
$
9,045
$
509
5.63%
Other Charges, Commissions and Fees. Significant amounts impacting the comparable periods was
primarily attributed to ATM and debit card interchange fees which increased $209 thousand in 2017
compared to 2016 and $184 thousand in 2016 compared to 2015.
Mortgage Fee Income. The increase in mortgage fee income in 2017 compared to the same period in 2016 is
due to an increase in the volume of mortgage loans.
Securities Gains (Losses). The decrease in 2017 is attributable to no sale of securities in 2017 compared to a
gain on sale of securities in 2016.
Other. The Bank did not have any significant changes for 2017 compared to 2016. Significant amounts
impacting the comparable periods was primarily attributed to having income from the sale of a tax credit of
$66 thousand and life insurance benefits of $137 that did not occur in 2016 when compared to 2015.
75
Noninterest Expense
The components of noninterest expense were as follows:
2017
2016
Variance Variance
2016
2015
Variance Variance
$
%
$
%
Salaries and Employee Benefits
$
19,223
$
18,483
$
740
4.00%
$
18,483
$
17,590
$
893
5.08%
Occupancy and Equipment
3,948
Directors' Fees
Legal and Professional Fees
Foreclosed Property
FDIC Assessment
Advertising
Software
Telephone
ATM/Card Processing
Other
Total
298
894
363
387
350
1,192
814
1,467
4,924
3,970
349
792
1,143
604
610
1,112
737
1,136
5,137
(22)
(51)
(0.55)
(14.61)
102
12.88
(780)
(68.24)
(217)
(35.93)
(260)
(42.62)
80
77
7.19
10.45
331
29.14
(213)
(4.15)
3,970
349
792
1,143
604
610
1,112
737
1,136
5,137
3,989
358
738
1,683
899
625
993
710
1,061
5,078
(19)
(0.48)
(9)
(2.51)
54
7.32
(540)
(32.09)
(295)
(32.81)
(15)
(2.40)
119
11.98
27
75
59
3.80
7.07
1.16
$
33,860
$
34,073
$
(213)
(0.63)%
$
34,073
$
33,724
$
349
1.03%
Salaries and Employee Benefits. The increase in salary and employee benefits for 2017 and 2016 is due to
merit pay increases.
Foreclosed Property. The decrease in foreclosed property and repossession expense for 2017 and 2016 is
primarily attributable to the decrease in the volume of OREO.
Advertising. The decrease in advertising expense for 2017 is due to management changing its approach to
advertising by decreasing its television ads.
ATM/Card Processing. The increase is proportional to the Bank’s increase in deposits and to ATM and debit
card interchange fees.
76
Sources and Uses of Funds
The following table illustrates, during the years presented, the mix of the Company’s funding sources and the
assets in which those funds are invested as a percentage of the Company’s average total assets for the period
indicated. Average assets totaled $1.20 billion in 2017 compared to $1.16 billion in 2016 and $1.15 billion in
2015.
Sources of Funds:
Deposits:
Noninterest-Bearing
Interest-Bearing
Federal Funds Purchased
and Repurchase Agreements
Subordinated Debentures
and Other Borrowed Money
Other Noninterest-Bearing
Liabilities
Equity Capital
2017
2016
2015
$
158,924
871,561
13.24%
72.59%
$
140,338
853,368
12.1%
73.3%
$
128,541
847,811
11.2%
73.9%
178
0.01%
35
- %
3
- %
75,617
6.30%
66,699
5.7%
64,229
5.6%
3,306
91,045
0.28%
7.58%
3,309
100,114
0.3%
8.6%
4,690
101,710
0.4%
8.9%
Total
$
1,200,631
100.00%
$
1,163,863
100.0%
$
1,146,984
100.0%
Uses of Funds:
Loans (Net of Allowance)
Investment Securities
Federal Funds Sold
Interest-Bearing Deposits
Other Interest-Earning Assets
Other Noninterest-Earning Assets
$
754,112
347,100
-
20,920
3,126
75,373
62.81%
28.91%
- %
1.74%
0.26%
6.28%
$
751,777
303,797
-
23,167
2,854
82,268
64.6%
26.1%
- %
2.0%
0.2%
7.1%
$
748,366
278,978
6,056
29,815
2,754
81,015
65.3%
24.3%
0.5%
2.6%
0.2%
7.1%
Total
$
1,200,631
100.00%
$
1,163,863
100.0%
$
1,146,984
100.0%
Deposits continue to be the Company’s primary source of funding. Over the comparable periods, the relative
mix of deposits continues to be high in interest-bearing deposits. Interest-bearing deposits totaled 84.6
percent of total average deposits in 2017 compared to 85.9 percent in 2016 and 86.8 percent in 2015.
The Company primarily invests funds in loans and securities. Loans continue to be the largest component of
the Company’s mix of invested assets. Loan demand increased in 2017 as total loans were $765.3 million at
December 31, 2017, up 1.46 percent, compared to loans of $754.3 million at December 31, 2016, which went
down 0.57 percent, compared to loans of $758.6 million at December 31, 2015. See additional discussion
regarding the Company’s loan portfolio in the section captioned “Loans” on the following page. The
majority of funds provided by deposits have been invested in loans and securities.
77
Loans
The following table presents the composition of the Company’s loan portfolio as of December 31 for the past
five years.
Commercial and Agricultural
Commercial
Agricultural
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
Unearned Interest and Fees
Allowances for Loan Losses
2017
2016
2015
2014
2013
$
48,122
16,443
$
47,025
17,080
$
47,782
19,193
$
50,960
16,689
$
48,107
10,666
45,214
8,583
351,172
194,049
67,768
18,956
14,977
765,284
(495)
(7,508)
30,358
11,830
349,090
195,580
66,877
19,695
16,748
754,283
(361)
(8,923)
40,107
9,413
346,262
197,002
61,780
20,605
16,492
758,636
(357)
(8,604)
51,259
11,221
332,231
203,753
49,951
22,820
7,210
746,094
(362)
(8,802)
52,739
6,549
341,783
206,258
47,034
25,676
12,406
751,218
(360)
(11,806)
Loans
$
757,281
$
744,999
$
749,675
$
736,930
$
739,052
The following table presents total loans as of December 31, 2017 according to maturity distribution and/or
repricing opportunity on adjustable rate loans.
Maturity and Repricing Opportunity
One Year or Less
After One Year through Three Years
After Three Years through Five Years
Over Five Years
$279,145
270,161
169,049
46,929
$765,284
Overview. Loans totaled $765.3 million at December 31, 2017 up 1.46 percent from 754.3 million at
December 31, 2016. The majority of the Company’s loan portfolio is comprised of the real estate loans.
Commercial and residential real estate which is primarily 1-4 family residential properties and nonfarm
nonresidential properties, made up 71.24 percent and 72.21 percent of total loans, real estate construction
loans made up 7.03 percent and 5.59 percent while commercial and agricultural loans made up 8.44 percent
and 8.50 percent of total loans at December 31, 2017 and December 31, 2016, respectively.
78
Loan Origination/Risk Management. In accordance with the Company’s decentralized banking model, loan
decisions are made at the local bank level. The Company utilizes both an Executive Loan Committee and a
Director Loan Committee to assist lenders with the decision making and underwriting process of larger loan
requests. Due to the diverse economic markets served by the Company, evaluation and underwriting
criterion may vary slightly by market. Overall, loans are extended after a review of the borrower’s
repayment ability, collateral adequacy, and overall credit worthiness.
Commercial purpose, commercial real estate, and agricultural loans are underwritten similarly to how other
loans are underwritten throughout the Company. The properties securing the Company’s commercial real
estate portfolio are diverse in terms of type and geographic location. In addition, the Company restricts total
loans to $10 million per borrower, subject to exception and approval by the Director Loan Committee. This
diversity helps reduce the company’s exposure to adverse economic events that affect any single market or
industry. Management monitors and evaluates commercial real estate loans monthly based on collateral,
geography, and risk grade criteria. The Company also utilizes information provided by third-party agencies
to provide additional insight and guidance about economic conditions and trends affecting the markets it
serves.
The Company extends loans to builders and developers that are secured by non-owner occupied properties.
In such cases, the Company reviews the overall economic conditions and trends for each market to determine
the desirability of loans to be extended for residential construction and development. Sources of repayment
for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of
developed property or an interim mini-perm loan commitment from the Company until permanent financing
is obtained. In some cases, loans are extended for residential loan construction for speculative purposes and
are based on the perceived present and future demand for housing in a particular market served by the
Company. These loans are monitored by on-site inspections and are considered to have higher risks than
other real estate loans due to their ultimate repayment being sensitive to interest rate changes, general
economic conditions and trends, the demand for the properties, and the availability of long-term financing.
The Company originates consumer loans at the bank level. Due to the diverse economic markets served by
the Company, underwriting criterion may vary slightly by market. The Company is committed to serving the
borrowing needs of all markets served and, in some cases, adjusts certain evaluation methods to meet the
overall credit demographics of each market. Consumer loans represent relatively small loan amounts that are
spread across many individual borrowers to help minimize risk. Additionally, consumer trends and outlook
reports are reviewed by management on a regular basis.
The Company utilizes an independent third party company for loan review and validation of the credit risk
program on an ongoing quarterly basis. Results of these reviews are presented to management and the audit
committee. The loan review process complements and reinforces the risk identification and assessment
decisions made by lenders and credit personnel, as well as the Company’s policies and procedures.
Commercial and Agricultural. Commercial and agricultural loans at December 31, 2017 increased 0.78
percent to $64.6 million from December 31, 2016 at $64.1 million. The Company’s commercial and
agricultural loans are a diverse group of loans to small, medium and large businesses. The purpose of these
loans varies from supporting seasonal working capital needs to term financing of equipment. While some
short-term loans may be made on an unsecured basis, most are secured by the assets being financed with
collateral margins that are consistent with the Company’s loan policy guidelines.
79
Real Estate. Commercial and residential construction loans increased by $11.6 million, or 27.49 percent, at
December 31, 2017 to $53.8 million from $42.2 million at December 31, 2016. This increase is partially due
to new commercial construction loans being financed during the year that were not completed by the end of
the year. Commercial real estate increased $2.1 million or 0.6 percent at December 31, 2017 to $351.17
million from $349.09 million at December 31, 2016.
Other. Other loans at December 31, 2017 decreased 10.6 percent to $14.98 million from $16.75 million in
December 31, 2016.
Industry Concentrations. As of December 31, 2017 and December 31, 2016, there were no concentrations of
loans within any single industry in excess of 10 percent of total loans, as segregated by Standard Industrial
Classification code (“SIC code”). The SIC code is a federally designed standard industrial numbering system
used by the Company to categorize loans by the borrower’s type of business. The Company has established
industry-specific guidelines with respect to maximum loans permitted for each industry with which the
Company does business.
Collateral Concentrations. Concentrations of credit risk can exist in relation to individual borrowers or
groups of borrowers, certain types of collateral, certain types of industries, or certain geographic regions.
The Company has a concentration in real estate loans as well as a geographic concentration that could pose
an adverse credit risk, particularly with the current economic downturn in the real estate market. At
December 31, 2017, approximately 87 percent of the Company’s loan portfolio was concentrated in loans
secured by real estate. A substantial portion of borrowers’ ability to honor their contractual obligations is
dependent upon the viability of the real estate economic sector. In addition, a large portion of the
Company’s foreclosed assets are also located in these same geographic markets, making the recovery of the
carrying amount of foreclosed assets susceptible to changes in market conditions. Management continues to
monitor these concentrations and has considered these concentrations in its allowance for loan loss analysis.
Large Credit Relationships. The Company is currently in eighteen counties in central, south and coastal
Georgia and includes metropolitan markets in Dougherty, Lowndes, Houston, Chatham and Muscogee
counties. As a result, the Company originates and maintains large credit relationships with several
commercial customers in the ordinary course of business. The Company considers large credit relationships
to be those with commitments equal to or in excess of $5.0 million prior to any portion being sold. Large
relationships also include loan participations purchased if the credit relationship with the agent is equal to or
in excess of $5.0 million. In addition to the Company’s normal policies and procedures related to the
origination of large credits, the Company’s Executive Loan Committee and Director Loan Committee must
approve all new and renewed credit facilities which are part of large credit relationships. The following table
provides additional information on the Company’s large credit relationships outstanding at December 31,
2017 and December 31, 2016.
December 31, 2017
Period End Balances
December 31, 2016
Period End Balances
Number of
Relationships Committed Outstanding
Number of
Relationships
Committed Outstanding
Large Credit Relationships:
$10 million or greater
$5 million to $9.9 million
1
15
$ 11,541
98,718
$ 8,718
89,556
-
14
$
-
96,807
$ -
86,712
80
Maturities and Sensitivities of Loans to Changes in Interest Rates. The following table presents the maturity
distribution of the Company’s loans at December 31, 2017. The table also presents the portion of loans that
have fixed interest rates or variable interest rates that fluctuate over the life of the loans in accordance with
changes in an interest rate index such as the prime rate.
Due in One
Year or Less
After One,
but Within
Three Years
After Three,
but Within
Five Years
After Five
Years
Total
Loans with fixed interest rates
Loans with floating interest rates
$200,340
78,805
$232,129
38,032
$ 115,366
53,683
$ 44,363
2,566
$ 592,198
173,086
Total
$279,145
$270,161
$169,049
$46,929
$765,284
The Company may renew loans at maturity when requested by a customer whose financial strength appears
to support such renewal or when such renewal appears to be in the Company’s best interest. In such
instances, the Company generally requires payment of accrued interest and may adjust the rate of interest,
require a principal reduction or modify other terms of the loan at the time of renewal.
81
Nonperforming Assets and Potential Problem Loans
Year-end nonperforming assets and accruing past due loans were as follows:
2017
2016
2015
2014
2013
Loans Accounted for on Nonaccrual
Loans Accruing Past Due 90 Days or More
Other Real Estate Foreclosed
Securities Accounted for on Nonaccrual
$ 7,503
$ 12,350
-
4,256
-
-
6,439
-
Total Nonperforming Assets
$ 11,759
$ 18,789
$ 14,408
8
8,839
-
$ 23,255
$ 7,106
4,197
-
9,908
1,103
941
$ 23,255
$18,334
7
10,402
-
$28,743
$ 9,655
8,237
173
8,375
1,449
854
$28,743
$ 24,114
4
15,502
-
$ 39,620
$ 17,323
5,926
335
12,441
1,629
1,966
$ 39,620
$ 3,376
4,375
-
9,182
800
1,056
$ 18,789
2.47%
1.55%
3.03%
1.98%
3.80%
2.51%
5.17%
3.45%
1.64%
1.90%
2.46%
3.21%
Nonperforming Assets by Segment
Construction and Land Development
1-4 Family Residential
Multifamily Residential
Nonfarm Residential
Farmland
Commercial and Consumer
Total Nonperforming Assets
Nonperforming Assets as a Percentage of:
Total Loans and Foreclosed Assets
Total Assets
Nonperforming Loans as a Percentage of:
Total Loans
Supplemental Data:
Trouble Debt Restructured Loans
$ 2,630
3,309
-
3,796
839
1,185
$ 11,759
1.53%
0.95%
0.98%
In Compliance with Modified Terms
$ 18,363
$ 17,992
$ 19,375
$19,229
$ 20,715
Trouble Debt Restructured Loans
Past Due 30-89 Days
Accruing Past Due Loans:
30-89 Days Past Due
90 or More Days Past Due
131
4,558
-
319
4,469
-
Total Accruing Past Due Loans
$ 4,558
$ 4,469
344
757
435
10,959
8
$ 10,967
9,701
7
$ 9,708
9,366
4
$ 9,370
Allowance for Loan Losses
ALLL as a Percentage of:
Total Loans
Nonperforming Loans
$ 7,508
$ 8,923
$ 8,604
$ 8,802
$ 11,806
0.98%
100.06%
1.18%
72.25%
1.13%
59.68%
1.18%
47.99%
1.57%
48.95%
Nonperforming assets include nonaccrual loans, loans past due 90 days or more, foreclosed real estate and
nonaccrual securities. Nonperforming assets at December 31, 2017 decreased 37.42 percent from December
31, 2016.
82
Generally, loans are placed on nonaccrual status if principal or interest payments become 90 days past due
and/or management deems the collectibility of the principal and/or interest to be in question, as well as when
required by regulatory requirements. Loans to a customer whose financial condition has deteriorated are
considered for nonaccrual status whether or not the loan is 90 days or more past due. For consumer loans,
collectibility and loss are generally determined before the loan reaches 90 days past due. Accordingly, losses
on consumer loans are recorded at the time they are determined. Consumer loans that are 90 days or more
past due are generally either in liquidation/payment status or bankruptcy awaiting confirmation of a plan.
is charged to current year
Once interest accruals are discontinued, accrued but uncollected interest
operations. Subsequent receipts on nonaccrual loans are recorded as a reduction of principal, and interest
income is recorded only after principal recovery is reasonably assured. Classification of a loan as nonaccrual
does not preclude the ultimate collection of loan principal or interest.
Troubled debt restructured loans are loans on which, due to deterioration in the borrower’s financial
condition, the original terms have been modified in favor of the borrower or either principal or interest has
been forgiven.
Foreclosed assets represent property acquired as the result of borrower defaults on loans. Foreclosed assets
are recorded at estimated fair value, less estimated selling costs, at the time of foreclosure. Write-downs
occurring at foreclosure are charged against the allowance for loan losses. On an ongoing basis, properties
are appraised as required by market indications and applicable regulations. Write-downs are provided for
subsequent declines in value and are included in other non-interest expense along with other expenses related
to maintaining the properties.
Allowance for Loan Losses
The allowance for loan losses is a reserve established through a provision for loan losses charged to expense,
which represents management’s best estimate of probable losses that have been incurred within the existing
portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan
losses and risks inherent in the loan portfolio. The allowance for loan losses includes allowance allocations
calculated in accordance with current U.S. accounting standards. The level of the allowance reflects
management’s continuing evaluation of industry concentrations, specific credit risks, loan loss experience,
current loan portfolio quality, present economic, political and regulatory conditions and unidentified losses
inherent in the current loan portfolio. Portions of the allowance may be allocated for specific credits;
however, the entire allowance is available for any credit that, in management’s judgment, should be charged
off. While management utilizes its best judgment and information available, the ultimate adequacy of the
allowance is dependent upon a variety of factors beyond the Company’s control, including the performance
of the Company’s loan portfolio, the economy, changes in interest rates and the view of the regulatory
authorities toward loan classifications.
83
The Company’s allowance for loan losses consists of specific valuation allowances established for probable
losses on specific loans and historical valuation allowances for other loans with similar risk characteristics.
During the first quarter of 2016 Company management implemented a change to its allowance for loan loss
methodology by expanding the historical loss period from a rolling 8 quarters to 16 quarters. Management
believes the longer historical loss period better reflects the current and expected loss behavior of the loan
portfolio within the current credit cycle. The transition to a rolling 16 quarter loss period was complete in
the first quarter of 2017. As of December 31, 2017, this change in the historical loss period resulted in a
decrease to the allowance for loan losses of $114,144. The loss history period used at December 31, 2016
and 2015 was based on the loss rate from the eight quarters ended September 30, 2016 and 2015,
respectively.
Effective with the quarter ended June 30, 2015, the calculation of the amount needed in the Allowance for
Loan Losses changed. Management determined that the segmentation method for the ASC 450-20 portion of
the loan portfolio should be changed to bank call report categories. Prior to this change, the ASC 450-20
segmentation categorized loans by various non-owner occupied commercial real estate loan types and risk
grades for the remainder of the ASC 450-20 portion of the portfolio. On the date of change, June 30, 2015,
the change in methodology resulted in an increase to the calculated allowance for loan loss reserve of
$1,621,424.
The allowances established for probable losses on specific loans are the result of management’s quarterly
review of substandard loans with an outstanding balance of $250,000 or more. This review process usually
involves regional credit officers along with local lending officers reviewing the loans for impairment.
Specific valuation allowances are determined after considering the borrower’s financial condition, collateral
deficiencies, and economic conditions affecting the borrower’s industry, among other things. In the case of
collateral dependent loans, collateral shortfall is most often based upon local market real estate value
estimates. This review process is performed at the subsidiary bank level and is reviewed at the parent
Company level.
Once the loan becomes impaired, it is removed from the pool of loans covered by the general reserve and
reviewed individually for exposure as described above. In cases where the individual review reveals no
exposure, no reserve is recorded for that loan, either through an individual reserve or through a general
reserve. If, however, the individual review of the loan does indicate some exposure, management often
charges off this exposure, rather than recording a specific reserve. In these instances, a loan which becomes
nonperforming could actually reduce the allowance for loan losses. Those loans deemed uncollectible are
transferred to our problem loan department for workout, foreclosure and/or liquidation. The problem loan
department obtains a current appraisal on the property in order to record the fair market value (less selling
expenses) when the property is foreclosed on and moved into other real estate.
The allowances established for the remainder of the loan portfolio are based on historical loss factors,
adjusted for certain qualitative factors, which are applied to groups of loans with similar risk characteristics.
Loans are segregated into fifteen separate groups based on call codes. Most of the Company’s charge-offs
during the past two years have been real estate dependent loans. The historical loss ratios applied to these
groups of loans are updated quarterly based on actual charge-off experience. The historical loss ratios are
further adjusted by qualitative factors.
84
Management evaluates the adequacy of the allowance for each of these components on a quarterly basis.
Peer comparisons, industry comparisons, and regulatory guidelines are also used in the determination of the
general valuation allowance. Loans identified as losses by management, internal loan review, and/or bank
examiners are charged off. Additional information about the Company’s allowance for loan losses is
provided in the Notes to the Consolidated Financial Statements for Allowance for Loan Losses.
The following table sets forth the breakdown of the allowance for loan losses by loan category for the
periods indicated. The allocation of the allowance to each category is subjective and is not necessarily
indicative of future losses and does not restrict the use of the allowance to absorb losses in any other
category.
2017
2016
2015
2014
2013
Reserve
%* Reserve
%* Reserve
%* Reserve
%* Reserve
%*
Commercial and Agricultural
$
Commercial
Agricultural
447
186
6%
2%
$
456
168
6%
2%
$
855
203
$
6%
3%
497
304
7%
2%
$
1,017
294
6%
2%
Real Estate
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer and Other
Consumer
Other
1,216
-
3,874
968
780
6%
1%
46%
25%
9%
323
13
5,751
1,396
722
4%
2%
46%
26%
9%
691
20
3,851
1,990
912
5%
1%
46%
26%
8%
1,223
138
3,665
2,425
104
7%
1%
45%
27%
7%
1,782
138
4,380
3,278
312
7%
1%
46%
27%
6%
34
3
7,508
$
3%
2%
100%
80
14
8,923
$
3%
2%
100%
63
19
8,604
$
3%
2%
100%
67
379
8,802
$
3%
1%
100%
243
362
11,806
$
3%
2%
100%
* Percentage represents the loan balance in each category expressed as a percentage of total end of period loans.
85
The following table presents an analysis of the Company’s loan loss experience for the periods indicated.
2017
2016
2015
2014
2013
Allowance for Loan Losses at Beginning of Year
$ 8,923
$ 8,604
$ 8,802
$ 11,806
$12,737
Charge-Offs
Commercial
Agricultural
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer
Other
Recoveries
Commercial
Agricultural
Commercial Construction
Residential Construction
Commercial
Residential
Farmland
Consumer
Other
Net Charge-Offs
Provision for Loans Losses
299
159
52
-
966
1,048
61
330
-
305
19
25
-
992
362
120
265
-
455
5
98
-
275
930
40
255
25
625
-
1,543
-
1,327
1,034
233
342
-
121
34
2,071
-
2,873
706
21
398
4
$ 2,915
$ 2,088
$ 2,083
$ 5,104
$ 6,228
137
4
266
-
527
82
17
75
2
67
4
814
-
206
50
145
53
6
1,110
1,805
1,345
743
390
1,062
52
3
486
-
270
110
20
62
16
1,019
1,064
866
76
3
485
-
90
31
20
72
15
792
56
6
253
-
298
65
22
94
18
812
4,312
1,308
5,416
4,485
Allowance for Loan Losses at End of Year
$ 7,508
$ 8,923
$ 8,604
$ 8,802
$11,806
Ratio of Net Charge-Offs to Average Loans
0.24%
0.10%
0.14%
0.58%
0.73%
The allowance for loan losses decreased from $8.92 million, or 1.18 percent of total loans at December 31,
2016 to $7.51 million, or 0.98 percent of total loans at December 31, 2017. The provision for loan losses
reflects loan quality trends, including the level of net charge-offs or recoveries, among other factors.
Significant changes in the allowance during 2017 was the increase in the net charge-offs in 2017 to $1.81
million from $743 thousand in 2016, or an increase of $1.06 million. Significant changes in the allowance
during 2016 was the reduction in the net charge-offs in 2016 to $743 thousand from $1.06 million in 2015.
The Company believes that collection efforts have reduced impaired loans and the reduction in net charge-
offs runs parallel with the improvement in the substandard assets. As we begin to see stabilization in the
economy and the housing and real estate market, we expect continued improvement in our substandard
assets, including net charge-offs. There were no charge-offs or recoveries related to foreign loans during any
of the periods presented.
86
Investment Portfolio
The following table presents carrying values of investment securities held by the Company as of December
31, 2017, 2016 and 2015.
State, County and Municipal
Mortgage-Backed Securities
Corporate
Asset-Backed
Total Investment Securities and
Mortgage-Backed Securities
2017
2016
2015
$ 4,493
346,723
2,060
971
$ 4,561
319,097
-
-
$ 5,099
291,050
-
-
$354,247
$323,658
$296,149
The following table represents expected maturities and weighted-average yields of investment securities held
by the Company as of December 31, 2017. (Mortgage-backed securities are based on the average life at the
projected speed, while State and Political Subdivisions reflect anticipated calls being exercised.)
Within 1 Year
After 1 Year But
Within 5 Years
Amount
Yield
Amount
Yield
After 5 Years But
Within 10 Years
Amount
Yield
After 10 Years
Amount
Yield
$
29,606
2.78%
$
204,342
1.79%
$
98,304
2.57%
$
14,471
2.96%
517
-
-
3.03
-
-
3,037
2,060
971
2.09
4.03
3.12
679
-
-
3.10
-
-
260
-
-
4.03
-
-
Mortgage-Backed Securities
Obligations of State and
Political Subdivisions
Corporate
Asset-Backed
Total Investment Portfolio
$
30,123
2.78%
$
210,410
1.82%
$
98,983
2.57%
$
14,731
2.98%
Securities are classified as held to maturity and carried at amortized cost when management has the positive
intent and ability to hold them to maturity. Securities are classified as available for sale when they might be
sold before maturity. Securities available for sale are carried at fair value, with unrealized holding gains and
losses reported in other comprehensive income. The Company has 100 percent of its portfolio classified as
available for sale.
At December 31, 2017, there were no holdings of any one issuer, other than the U.S. government and its
agencies, in an amount greater than 10 percent of the Company’s stockholders’ equity.
The average yield of the securities portfolio was 2.00 percent in 2017 compared to 1.79 percent in 2016 and
1.57 percent in 2015. The increase in the average yield from 2016 to 2017 was primarily attributed to the
purchase of new securities which have a higher yield. The increase in the average yield from 2015 to 2016
was primarily attributed to the adjustment in amortization resulting from the deceleration of prepayment
speeds.
87
Deposits
The following table presents the average amount outstanding and the average rate paid on deposits by the
Company for the years 2017, 2016 and 2015.
2017
2016
2015
Average
Amount
Average
Rate
Average
Amount
Average
Rate
Average
Amount
Average
Rate
$
158,924
$
140,338
$
128,541
517,974
353,587
0.37%
0.81%
469,740
383,628
0.36%
0.80%
430,731
417,080
0.35%
0.81%
Noninterest-Bearing
Demand Deposits
Interest-Bearing
Demand and Savings
Time Deposits
Total Deposits
$
1,030,485
0.46%
$
993,706
0.48%
$
976,352
0.50%
The following table presents the maturities of the Company’s time deposits as of December 31, 2017.
Months to Maturity
3 or Less
Over 3 through 6
Over 6 through 12
Over 12 Months
Time
Deposits
$250,000
or Greater
Time
Deposits
Less Than
$250,000
$ 4,166
7,316
20,670
6,767
$67,962
62,163
93,298
77,825
Total
$72,128
69,479
113,968
84,592
$38,919
$301,248
$340,167
Average deposits increased $36.78 million in 2017 compared to 2016 and increased $17.35 million in 2016
compared to 2015. The increase in 2017 included $48.23 million, or 10.27 percent in interest-bearing
demand and savings deposits while, at the same time noninterest bearing deposits increased $18.59 million,
or 13.24 percent and time deposits decreased $30.04 million, or 7.83 percent. The increase in 2016 included
$39.01 million, or 9.06 percent in interest-bearing demand and savings deposits while, at the same time
noninterest bearing deposits increased $11.80 million, or 9.18 percent and time deposits decreased $33.45
million, or 8.02 percent. Accordingly, the ratio of average noninterest-bearing deposits to total average
deposits was 15.42 percent in 2017, 14.12 percent in 2016 and 13.17 percent in 2015. The general decrease
in market rates in 2017 had the effect of (i) decreasing the average cost of interest-bearing deposits by 2 basis
points in 2017 compared to 2016 and (ii) mitigating a portion of the impact of decreasing yields on interest-
earning assets in the Company’s net interest income in 2017. The general decrease in market rates in 2016
had the effect of (i) decreasing the average cost of interest-bearing deposits by 2 basis points in 2016
compared to 2015 and (ii) mitigating a portion of the impact of decreasing yields on interest-earning assets in
the Company’s net interest income in 2016.
88
Total average interest-bearing deposits increased $18.19 million, or 2.13 percent in 2017 compared to 2016
and increased $5.56 million, or 0.66 percent in 2016 compared to 2015. This increase was primarily
attributable to the increase in interest-bearing demand and savings accounts in 2017 and in 2016 as well.
The Company supplements deposit sources with brokered deposits. As of December 31, 2017, the Company
had $46.33 million, or 4.34 percent of total deposits, in brokered certificates of deposit attracted by external
third parties. Additional information is provided in the Notes to Consolidated Financial Statements for
Deposits.
Off-Balance-Sheet Arrangements, Commitments, Guarantees, and Contractual Obligations
The following table summarizes the Company’s contractual obligations and other commitments to make
future payments as of December 31, 2017. Payments for borrowings do not include interest. Payments
related to leases are based on actual payments specified in the underlying contracts. Loan commitments and
standby letters of credit are presented at contractual amounts; however, since many of these commitments are
expected to expire unused or only partially used, the total amounts of these commitments do not necessarily
reflect future cash requirements. The off-balance-sheet arrangements for loan commitments consist of
approximately $10 million in 1-4 residential home equity and construction loans, $28 million in commercial
real estate construction loans, $18 million in commercial/industrial loans and $40 million in the overdraft
privilege program.
Contractual Obligations:
Subordinated Debentures
Federal Home Loan Bank Advances
Other Borrowings
Operating Leases
Deposits with Stated Maturity Dates
Other Commitments:
Loan Commitments
Standby Letters of Credit
Payments Due by Period
Total
$ 24,229
46,000
1,500
208
340,168
Less Than
1 Year
$
-
2,500
1,500
43
255,575
1 – 3 Years
3 – 5 Years
More Than
5 Years
$
-
5,000
-
42
41,210
$
-
29,500
-
123
43,266
$ 24,229
9,000
-
-
117
412,105
259,618
46,252
72,889
33,346
96,374
1,536
96,374
1,536
97,910
97,910
-
-
-
-
-
-
-
-
-
Total Contractual Obligations and
Other Commitments
$510,015
$357,528
$46,252
$72,889
$33,346
In the ordinary course of business, the Company has entered into off-balance sheet financial instruments
which are not reflected in the consolidated financial statements. These instruments include commitments to
extend credit, standby letters of credit, performance letters of credit, guarantees and liability for assets held in
trust.
89
Such financial instruments are recorded in the financial statements when funds are disbursed or the
instruments become payable. The Company uses the same credit policies for these off-balance sheet
financial instruments as they do for instruments that are recorded in the consolidated financial statements.
Loan Commitments. The Company enters into contractual commitments to extend credit, normally with fixed
expiration dates or termination clauses, at specified rates and for specific purposes. Substantially all of the
Company’s commitments to extend credit are contingent upon customers maintaining specific credit
standards at the time of loan funding. The Company minimizes its exposure to loss under these commitments
by subjecting them to credit approval and monitoring procedures. Management assesses the credit risk
associated with certain commitments to extend credit in determining the level of the allowance for loan
losses. Loan commitments outstanding at December 31, 2017 are included in the preceding table.
Standby Letters of Credit. Letters of credit are written conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. In the event the customer does not perform in
accordance with the terms of the agreement with the third party, the Company would be required to fund the
commitment. The maximum potential amount of future payments the Company could be required to make is
represented by the contractual amount of the commitment. If the commitment is funded, the Company would
be entitled to seek recovery from the customer. The Company’s policies generally require that standby letters
of credit arrangements contain security and debt covenants similar to those contained in loan agreements.
Standby letters of credit outstanding at December 31, 2017 are included in the preceding table.
Capital and Liquidity
At December 31, 2017, shareholders’ equity totaled $90.32 million compared to $93.39 million at December
31, 2016. In addition to net income of $7.75 million, other significant changes in shareholders’ equity during
2017 included $210.6 thousand of dividends declared on preferred stock, $843.9 thousand of dividends
declared on common stock and $9.36 million redemption of preferred stock. The accumulated other
comprehensive loss component of stockholders’ equity totaled $(6.49) million at December 31, 2017
compared to $(5.02) million at December 31, 2016. This fluctuation was mostly related to the after-tax
effect of changes in the fair value of securities available for sale. Under regulatory requirements, the
unrealized gain or loss on securities available for sale does not increase or reduce regulatory capital and is
not included in the calculation of risk-based capital and leverage ratios. Regulatory agencies for banks and
bank holding companies utilize capital guidelines designed to measure Tier 1 and total capital and take into
consideration the risk inherent in both on-balance sheet and off-balance sheet items. Tier 1 capital consists of
common stock and qualifying preferred stockholders’ equity less goodwill and disallowed deferred tax
assets. Tier 2 capital consists of certain convertible, subordinated and other qualifying debt and the
allowance for loan losses up to 1.25 percent of risk-weighted assets. The Company has no Tier 2 capital
other than the allowance for loan losses.
Using the capital requirements presently in effect, the Tier 1 ratio as of December 31, 2017 was 14.64
percent and total Tier 1 and 2 risk-based capital was 15.56 percent. Both of these measures compare
favorably with the regulatory minimum of 6 percent for Tier 1 and 8 percent for total risk-based capital. The
Company’s common equity Tier 1 ratio as of December 31, 2017 was 11.78, which exceeds the regulatory
minimum of 4.50 percent. The Company’s Tier 1 leverage ratio as of December 31, 2017 was 9.89 percent,
which exceeds the required ratio standard of 4 percent.
For 2017, average capital was $91.05 million, representing 7.58 percent of average assets for the year. This
compares to 8.60 percent for 2016.
90
For 2017, the Company did not have any material commitments for capital expenditures.
The Company reinstated payment of common stock dividends in 2017 with a cash dividend of $844
thousand. The Company did not pay any common stock dividends in 2016. The Company suspended
common stock dividend payments beginning in the third quarter of 2009 for capital retention purposes.
The Company declared dividends of $211 thousand and $1,493 million on preferred stock during 2017 and
2016, respectively. On November 17, 2014 the Company reinstated dividend payments after being on
deferral since February 12, 2012, on the Preferred Stock and paid $5.5 million of accumulated dividends in
arrears to the holders of the Preferred Stock. Additional information is provided in the Notes to the
Consolidated Financial Statements for Preferred Stock.
The Company, primarily through the actions of its subsidiary bank, engages in liquidity management to
ensure adequate cash flow for deposit withdrawals, credit commitments and repayments of borrowed funds.
Needs are met through loan repayments, net interest and fee income and the sale or maturity of existing
assets. In addition, liquidity is continuously provided through the acquisition of new deposits, the renewal of
maturing deposits and external borrowings.
Management monitors deposit flow and evaluates alternate pricing structures to retain and grow deposits.
To the extent needed to fund loan demand, traditional local deposit funding sources are supplemented by the
use of FHLB borrowings, brokered deposits and other wholesale deposit sources outside the immediate
market area. Internal policies have been updated to monitor the use of various core and non-core funding
sources, and to balance ready access with risk and cost. Through various asset/liability management
strategies, a balance is maintained among goals of liquidity, safety and earnings potential. Internal policies
that are consistent with regulatory liquidity guidelines are monitored and enforced by the Bank.
The investment portfolio provides a ready means to raise cash if liquidity needs arise. As of
December 31, 2017, the available for sale bond portfolio totaled $354.2 million. At December 31, 2016, the
available for sale bond portfolio totaled $323.7 million. Only marketable investment grade bonds are
purchased. Although most of the Bank’s bond portfolio is encumbered as pledges to secure various public
funds deposits, repurchase agreements, and for other purposes, management can restructure and free up
investment securities for sale if required to meet liquidity needs.
Management continually monitors the relationship of loans to deposits as it primarily determines the
Company’s liquidity posture. Colony had ratios of loans to deposits of 71.6 percent as of December 31, 2017
and 72.2 percent as of December 31, 2016. Management employs alternative funding sources when deposit
balances will not meet loan demands. The ratios of loans to all funding sources (excluding Subordinated
Debentures) at December 31, 2017 and December 31, 2016 were 68.6 percent and 69.2 percent, respectively.
Management continues to emphasize programs to generate local core deposits as our Company’s primary
funding sources. The stability of the Banks’ core deposit base is an important factor in Colony’s liquidity
position. A heavy percentage of the deposit base is comprised of accounts of individuals and small
businesses with comprehensive banking relationships and limited volatility. At December 31, 2017 and
December 31, 2016, the Bank had $38.9 million and $32.2 million, respectively, in certificates of deposit of
$250,000 or more. These larger deposits represented 3.6 percent and 3.1 percent of respective total deposits.
Management seeks to monitor and control the use of these larger certificates, which tend to be more volatile
in nature, to ensure an adequate supply of funds as needed. Relative interest costs to attract local core
relationships are compared to market rates of interest on various external deposit sources to help minimize
the Company’s overall cost of funds.
91
The Company supplemented deposit sources with brokered deposits. As of December 31, 2017, the
Company had $46.3 million or 4.3 percent of total deposits in CDARS. Additional information is provided
in the Notes to the Consolidated Financial Statements regarding these brokered deposits. Additionally, the
Company uses external deposit listing services to obtain out-of-market certificates of deposit at competitive
interest rates when funding is needed. The deposits obtained from listing services are often referred to as
wholesale or Internet CDs. As of December 31, 2017, the Company had $13.5 million, or 1.3 percent of total
deposits, in internet certificates of deposit obtained through deposit listing services.
To plan for contingent sources of funding not satisfied by both local and out-of-market deposit balances,
Colony and its subsidiary have established multiple borrowing sources to augment their funds management.
The Company has borrowing capacity through membership of the Federal Home Loan Bank program. The
Bank has also established overnight borrowing for Federal Funds Purchased through various correspondent
banks. Management believes the various funding sources discussed above are adequate to meet the
Company’s liquidity needs in the future without any material adverse impact on operating results.
Liquidity measures the ability to meet current and future cash flow needs as they become due. The liquidity
of a financial institution reflects its ability to meet loan requests, to accommodate possible outflows in
deposits and to take advantage of interest rate market opportunities. The ability of a financial institution to
meet its current financial obligations is a function of balance sheet structure, the ability to liquidate assets,
and the availability of alternative sources of funds. The Company seeks to ensure its funding needs are met
by maintaining a level of liquid funds through asset/liability management.
Asset liquidity is provided by liquid assets which are readily marketable or pledgeable or which will mature
in the near future. Liquid assets include cash, interest-bearing deposits in banks, securities available for sale
and federal funds sold and securities purchased under resale agreements.
Liability liquidity is provided by access to funding sources which include core deposits. Should the need
arise, the Company also maintains relationships with the Federal Home Loan Bank, Federal Reserve Bank,
two correspondent banks and repurchase agreement lines that can provide funds on short notice.
Since Colony is a bank holding Company and does not conduct operations, its primary sources of liquidity
are dividends up streamed from the subsidiary bank and borrowings from outside sources.
The liquidity position of the Company is continuously monitored and adjustments are made to the balance
between sources and uses of funds as deemed appropriate. Management is not aware of any events that are
reasonably likely to have a material adverse effect on the Company’s liquidity, capital resources or
operations. In addition, management is not aware of any regulatory recommendations regarding liquidity,
which if implemented, would have a material adverse effect on the Company.
92
Impact of Inflation and Changing Prices
The Company’s financial statements included herein have been prepared in accordance with accounting
principles generally accepted in the United States (GAAP). GAAP presently requires the Company to
measure financial position and operating results primarily in terms of historic dollars. Changes in the relative
value of money due to inflation or recession are generally not considered. The primary effect of inflation on
the operations of the Company is reflected in increased operating costs, though given recent economic
conditions, the Company has not experienced any material effects of inflation during the last three fiscal
years. In management’s opinion, changes in interest rates affect the financial condition of a financial
institution to a far greater degree than changes in the inflation rate. While interest rates are greatly influenced
by changes in the inflation rate, they do not necessarily change at the same rate or in the same magnitude as
the inflation rate. Interest rates are highly sensitive to many factors that are beyond the control of the
Company, including changes in the expected rate of inflation, the influence of general and local economic
conditions and the monetary and fiscal policies of the United States government, its agencies and various
other governmental regulatory authorities, among other things, as further discussed in the next section.
Regulatory and Economic Policies
The Company’s business and earnings are affected by general and local economic conditions and by the
monetary and fiscal policies of the United States government, its agencies and various other governmental
regulatory authorities, among other things. The Federal Reserve Board regulates the supply of money in
order to influence general economic conditions. Among the instruments of monetary policy available to the
Federal Reserve Board are (i) conducting open market operations in United States government obligations,
(ii) changing the discount rate on financial institution borrowings, (iii) imposing or changing reserve
requirements against financial institution deposits, and (iv) restricting certain borrowings and imposing or
changing reserve requirements against certain borrowings by financial institutions and their affiliates. These
methods are used in varying degrees and combinations to affect directly the availability of bank loans and
deposits, as well as the interest rates charged on loans and paid on deposits. For that reason alone, the
policies of the Federal Reserve Board have a material effect on the earnings of the Company.
Governmental policies have had a significant effect on the operating results of commercial banks in the past
and are expected to continue to do so in the future; however, the Company cannot accurately predict the
nature, timing or extent of any effect such policies may have on its future business and earnings.
Recently Issued Accounting Pronouncements
See Note 1 - Summary of Significant Accounting Policies under the section headed Changes in Accounting
Principles and Effects of New Accounting Pronouncements included in the Notes to the Consolidated
Financial Statements.
93
Market Risk and Interest Rate Sensitivity
Our financial performance is impacted by, among other factors, interest rate risk and credit risk. We do not
utilize derivatives to mitigate our credit risk, relying instead on an extensive loan review process and our
allowance for loan losses.
Interest rate risk is the change in value due to changes in interest rates. The Company is exposed only to
U.S. dollar interest rate changes and, accordingly, the Company manages exposure by considering the
possible changes in the net interest margin. The Company does not have any trading instruments nor does it
classify any portion of its investment portfolio as held for trading. The Company does not engage in any
hedging activity or utilize any derivatives. The Company has no exposure to foreign currency exchange rate
risk, commodity price risk and other market risks. Interest rate risk is addressed by our Asset & Liability
Management Committee (ALCO) which includes senior management representatives. The ALCO monitors
interest rate risk by analyzing the potential impact to the net portfolio of equity value and net interest income
from potential changes to interest rates and considers the impact of alternative strategies or changes in
balance sheet structure.
Interest rates play a major part in the net interest income of financial institutions. The repricing of interest
earnings assets and interest-bearing liabilities can influence the changes in net interest income. The timing of
repriced assets and liabilities is Gap management and our Company has established its policy to maintain a
Gap ratio in the one-year time horizon of .80 to 1.20.
Our exposure to interest rate risk is reviewed at least quarterly by our Board of Directors and the ALCO.
Interest rate risk exposure is measured using interest rate sensitivity analysis to determine our change in net
portfolio value in the event of assumed changes in interest rates. In order to reduce the exposure to interest
rate fluctuations, we have implemented strategies to more closely match our balance sheet composition. The
Company has engaged FTN Financial to run a quarterly asset/liability model for interest rate risk analysis.
We are generally focusing our investment activities on securities with terms or average lives in the 3 ½ - 5 ½
year range.
Market risk reflects the risk of economic loss resulting from adverse changes in market prices and interest
rates. This risk of loss can be reflected in either reduced current market values or reduced current and
potential net income. Colony’s most significant market risk is interest rate risk. This risk arises primarily
from Colony’s extension of loans and acceptance of deposits.
Managing interest rate risk is a primary goal of the asset liability management function. Colony attempts to
achieve stability in net interest income while limiting volatility arising from changes in interest rates. Colony
seeks to achieve this goal by balancing the maturity and repricing characteristics of assets and liabilities.
Colony manages its exposure to fluctuations in interest rates through policies established by ALCO and
approved by the Board of Directors. ALCO meets at least quarterly and has responsibility for developing
asset liability management policies, reviewing the interest rate sensitivity of Colony, and developing and
implementing strategies to improve balance sheet structure and interest rate risk positioning.
94
Colony measures the sensitivity of net interest income to changes in market interest rates through the
utilization of Asset/Liability simulation modeling. On at least a quarterly basis, the following twenty-four
month time period is simulated to determine a baseline net interest income forecast and the sensitivity of this
forecast to changes in interest rates. These simulations include all of Colony’s earning assets and liabilities.
Forecasted balance sheet changes, primarily reflecting loan and deposit growth and forecasts, are included in
the periods modeled. Projected rates for loans and deposits are based on management’s outlook and local
market conditions.
The magnitude and velocity of rate changes among the various asset and liability groups exhibit different
characteristics for each possible interest rate scenario; additionally, customer loan and deposit preferences
can vary in response to changing interest rates. Simulation modeling enables Colony to capture the expected
effect of these differences. Assumptions utilized in the model are updated on an ongoing basis and are
reviewed and approved by the ALCO Committee of the Board of Directors.
Colony has modeled its baseline net interest income forecast assuming a flat interest rate environment with
the federal funds rate at the Federal Reserve's current targeted range of 1.25% to 1.50% and the current prime
rate of 4.50%. Colony has modeled the impact of a gradual increase in short-term rates of 100 and 200 basis
points and a decline of 100 basis points to determine the sensitivity of net interest income for the next twelve
months. As illustrated in the table below, the net interest income sensitivity model indicates that, compared
with a net interest income forecast assuming stable rates, net interest income is projected to increase by
0.58% and increase by 0.27% if interest rates increased by 100 and 200 basis points, respectively. Net
interest income is projected to decline by 2.57% if interest rates decreased by 100 basis points. These
changes were within Colony’s policy limit of a maximum 15% negative change.
Twelve Month Net Interest Income Sensitivity
Estimated Change in Net Interest Income
As of December 31,
Change in Short-term Interest Rates (in basis points)
+200
+100
Flat
-100
2017
0.27%
0.58%
-%
-2.57%
2016
3.35%
1.88%
- %
-3.67%
The measured interest rate sensitivity indicates an asset sensitive position over the next year, which could
serve to improve net interest income in a rising interest rate environment. The actual realized change in net
interest income would depend on several factors, some of which could serve to reduce or eliminate the asset
sensitivity noted above. These factors include a higher than projected level of deposit customer migration to
higher cost deposits, such as certificates of deposit, which would increase total interest expense and serve to
reduce the realized level of asset sensitivity. Another factor which could impact the realized interest rate
sensitivity in a rising rate environment is the repricing behavior of interest bearing non-maturity deposits.
Assumptions for repricing are expressed as a beta relative to the change in the prime rate. For instance, a
25% beta would correspond to a deposit rate that would increase 0.25% for every 1% increase in the prime
rate. Projected betas for interest bearing non-maturity deposit repricing are a key component of determining
the Company's interest rate risk position. Should realized betas be higher than projected betas, the expected
benefit from higher interest rates would be reduced.
95
The net interest income simulation model is the primary tool utilized to evaluate potential interest rate risks
over a shorter term time horizon. Colony also evaluates potential longer term interest rate risk through
modeling and evaluation of economic value of equity (EVE). This EVE modeling allows Colony to capture
longer-term repricing risk and options risk embedded in the balance sheet. Simulation modeling is utilized to
measure the economic value of equity and its sensitivity to immediate changes in interest rates. These
simulations value only the current balance sheet and do not incorporate growth assumptions used in the net
interest income simulation. The economic value of equity is the net fair value of assets and liabilities derived
from the present value of future cash flows discounted at current market interest rates. From this baseline
valuation, Colony evaluates changes in the value of each of these items in various interest rate scenarios to
determine the net impact on the economic value of equity. Key assumptions utilized in the model, namely
loan prepayments, deposit pricing betas, and non-maturity deposit durations have a significant impact on the
results of the EVE simulations.
As illustrated in the table below, the economic value of equity model indicates that, compared with a
valuation assuming stable rates, EVE is projected to increase by 7.93% and 13.13%, assuming an immediate
and sustained increase in interest rates of 100 and 200 basis points, respectively. The primary reason for the
increase in asset sensitivity from the prior year is a more aggressive assumption regarding non-maturity
deposit durations. Assuming an immediate 100 basis point decline in rates, EVE is projected to decrease by
11.73%. These changes were within Colony’s policy except in the -100 basis point change, which limits the
maximum negative change in EVE to 10% of the base EVE. We believe this projection outside of policy is
mitigated by the unlikely reduction in interest rates due to the current rate environment.
Economic Value of Equity Sensitivity
Immediate Change in Interest Rates
(in basis points)
+200
+100
-100
Estimated Change in EVE
As of December 31,
2017
13.13%
7.93%
-11.73%
2016
16.27%
9.59%
-12.44%
Colony is also subject to market risk in certain of its fee income business lines. Financial management
services revenues, which include trust, brokerage, and asset management fees, can be affected by risk in the
securities markets, primarily the equity securities market. A significant portion of the fees in this unit are
determined based upon a percentage of asset values. Weaker securities markets and lower equity values have
an adverse impact on the fees generated by these operations. Trading account assets, maintained to facilitate
brokerage customer activity, are also subject to market risk. This risk is not considered significant, as trading
activities are limited and subject to risk policy limits. Mortgage banking income is also subject to market
risk. Mortgage loan originations are sensitive to levels of mortgage interest rates and therefore, mortgage
banking income could be negatively impacted during a period of rising interest rates. The extension of
commitments to customers to fund mortgage loans also subjects Colony to market risk. This risk is primarily
created by the time period between making the commitment and closing and delivering the loan. Colony
seeks to minimize this exposure by utilizing various risk management tools, the primary of which are
forward sales commitments and best efforts commitments.
96
The following table is an analysis of the Company’s interest rate-sensitivity position at December 31, 2017.
The interest-bearing rate-sensitivity gap, which is the difference between interest-earning assets and interest-
bearing liabilities by repricing period, is based upon maturity or first repricing opportunity, along with a
cumulative interest rate-sensitivity gap. It is important to note that the table indicates a position at a specific
point in time and may not be reflective of positions at other times during the year or in subsequent periods.
Major changes in the gap position can be, and are, made promptly as market outlooks change.
Assets and Liabilities Repricing Within
3 Months
or Less
4 to 12
Months
1 Year
1 to 5
Years
Over 5
Years
Total
INTEREST-EARNING ASSETS:
Interest-Bearing Deposits
Investment Securities
Loans, Net of Unearned Income
Other Interest- Earning Assets
$ 34,668
302
142,947
3,043
$ -
2,883
135,950
-
$ 34,668
3,185
278,897
3,043
$ -
215,082
438,962
-
$ -
135,980
46,929
-
$34,668
354,247
764,788
3,043
Total Interest-Earning Assets
$180,960
$138,833
$319,793
$654,044
$182,909
$1,156,746
INTEREST-BEARING LIABILITIES:
Interest-Bearing Demand Deposits (1)
Savings (1)
Time Deposits
Other Borrowings
Subordinated Debentures
458,717
78,172
72,128
4,000
24,229
-
-
183,447
-
-
458,717
78,172
255,575
4,000
24,229
-
-
84,476
34,500
-
-
-
117
9,000
-
458,717
78,172
340,168
47,500
24,229
Total Interest-Bearing Liabilities
637,246
183,447
820,693
118,976
9,117
948,786
Interest Rate-Sensitivity Gap
(456,286)
(44,614)
(500,900)
535,068
173,792
$ 207,960
Cumulative Interest-Sensitivity Gap
$(456,286)
$(500,900)
$(500,900)
$ 34,168
$207,960
Interest Rate-Sensitivity Gap as a
Percentage of Interest-Earning Assets
Cumulative Interest Rate-Sensitivity
as a Percentage of Interest-Earning
Assets
(39.44)%
(3.86)%
(43.30)% 46.26% 15.02%
(39.44)%
(43.30)%
(43.30)%
2.96% 17.98%
(1) Interest-bearing Demand and Savings Accounts for repricing purposes are considered to reprice within 3 months or less.
97
The foregoing table indicates that we had a one year negative gap of $500.9 million, or 43.30 percent of total
interest-earning assets at December 31, 2017. In theory, this would indicate that at December 31, 2017,
$500.9 million more in liabilities than assets would reprice if there were a change in interest rates over the
next 365 days. Thus, if interest rates were to decline, the gap would indicate a resulting increase in net
interest margin. However, changes in the mix of interest-earning assets or supporting liabilities can either
increase or decrease the net interest margin without affecting interest rate sensitivity. In addition, the interest
rate spread between an asset and our supporting liability can vary significantly while the timing of repricing
of both the assets and our supporting liability can remain the same, thus impacting net interest income. This
characteristic is referred to as a basis risk and, generally, relates to the repricing characteristics of short-term
funding sources such as certificates of deposits.
Gap analysis has certain limitations. Measuring the volume of repricing or maturing assets and liabilities
does not always measure the full impact on the portfolio value of equity or net interest income. Gap analysis
does not account for rate caps on products; dynamic changes such as increasing prepay speeds as interest
rates decrease, basis risk, or the benefit of non-rate funding sources. The majority of our loan portfolio
reprices quickly and completely following changes in market rates, while non-term deposit rates in general
move slowly and usually incorporate only a fraction of the change in rates. Products categorized as nonrate
sensitive, such as our noninterest-bearing demand deposits, in the gap analysis behave like long term fixed
rate funding sources. Both of these factors tend to make our actual behavior more asset sensitive than is
indicated in the gap analysis. In fact, we experience higher net interest income when rates rise, opposite
what is indicated by the gap analysis. Therefore, management uses gap analysis, net interest margin analysis
and market value of portfolio equity as our primary interest rate risk management tools. The Company has
established its one year gap to be 80 percent to 120 percent. The most recent analysis as of December 31,
2017 indicates a one year gap of 1.10 percent. The analysis reflects slight net interest margin compression in
both a declining and increasing interest rate environment. Given that interest rates have shown a gradual
increase with the Federal Reserve actions since 2015, the Company is anticipating interest rates to increase in
the future though we believe that interest rates will increase modestly in 2018. The Company is focusing on
areas to minimize margin compression in the future by minimizing longer term fixed rate loans, shortening
on the yield curve with investments, securing longer term FHLB advances, securing certificates of deposit
for longer terms and focusing on reduction of nonperforming assets.
The Company utilizes FTN Financial Asset/Liability Management Analysis for a more dynamic analysis of
balance sheet structure. The Company has established policies for rate shock per basis point (bp) for
earnings at risk for net interest income and for equity at risk. The following table shows the policy limits
with the rate shock for earnings at risk and equity at risk as of December 31, 2017.
Net Interest Income –
Earnings at Risk
Equity at Risk
Rate Shock
+/- 100 bp
+/- 200 bp
+/- 300 bp
+/- 400 bp
+/- 100 bp
+/- 200 bp
+/- 300 bp
+/- 400 bp
Policy
Limit
+/- 10%
+/- 15%
+/- 20%
+/- 25%
+/- 10%
+/- 20%
+/- 30%
+/- 40%
Immediate Shock
(-) decrease bp
Immediate Shock
(+) increase bp
-2.80%
-7.96
-11.08
-12.45
-11.73
-26.41
-34.15
-35.09
0.79%
0.27
0.13
-1.24
7.93
13.13
15.81
17.08
98
Return on Assets and Stockholder’s Equity
The following table presents selected financial ratios for each of the periods indicated.
Return on Average Assets(1)
Return on Average Equity(1)
Equity to Assets
Years Ended December 31
2016
2017
2015
0.63%
8.28%
7.33%
0.62%
7.17%
7.72%
0.52%
5.90%
8.13%
Common Stock Dividends Declared
$0.10
$0.00
$0.00
(1) Computed using net income available to common shareholders.
99
100
Table of
Contents
Letter to the
Shareholders .............1
Financial Summary .... 2
Total Return
Performance ............. 3
Board of Directors ..... 4
Market Presidents ...... 5
Savannah and
Tifton Offi ces ............ 6
Consolidated
Financial Statements ...7
Colony Bankcorp, Inc. common stock is
quoted on the NASDAQ Global Market
under the symbol “CBAN.”
COLONY BANKCORP, INC.
SHAREHOLDER INFORMATION
CORPORATE HEADQUARTERS:
Colony Bankcorp, Inc.
P.O. Box 989
115 South Grant Street
Fitzgerald, Georgia 31750
229-426-6000
ANNUAL MEETING
Tuesday, May 22, 2018 at 2:00 p.m.
Colony Bankcorp, Inc.
115 South Grant Street
Fitzgerald, Georgia 31750
INDEPENDENT AUDITORS:
McNair, McLemore, Middlebrooks & Co., LLC
P.O. Box One
Macon, Georgia 31202
SHAREHOLDER SERVICES:
Shareholders who want to change the name,
address or ownership of stock; to report
lost, stolen or destroyed certifi cates; or to
consolidate accounts should contact:
American Stock Transfer & Trust Company
Operations Center
6201 15th Avenue
Brooklyn, NY 11219
800-937-5449
www.amstock.com
2017 ANNUAL REPORT
Member FDIC
Colony Bankcorp, Inc.
P.O. Box 989 • 115 S. Grant St.
Fitzgerald, GA 31750
229-426-6000 • www.colonybank.com